The economic recession and its effects on the real estate market have generated a new type of scam artist for consumers to be aware of: mortgage loan modification companies.
Mortgage loan modifications are a type of loss mitigation program, designed by mortgage lenders, to minimize their losses by working with consumers to make mortgage payments more affordable so that consumers can remain in their homes and avoid foreclosure. Through loan modification, consumers may be able to cure payment delinquencies, lower their monthly mortgage payments, lower the overall principal amount owed on the mortgage, lower the interest rate, or achieve all of the above. Most consumers are aware of loan modifications, but not aware of all that can be achieved through a loan modification.
Consumer awareness of mortgage loan modifications increased upon the enactment of President Obama’s “Making Home Affordable” program. This program gives incentives to mortgage companies to engage in loan modifications if the home and the consumer meet the following guidelines, according to the U.S. Treasury’s website:
1) Loans must have originated (been granted) on or before January 1, 2009.
2) The mortgage must be the primary mortgage on the consumer’s personal residence, and the mortgage may have an unpaid principal balance up to $729,750.
3) All borrowers (consumers) must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
4) Whether the consumer lives in the home will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
5) Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
6) Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
Due to the current high demand for loan modifications, numerous “mortgage loan modification companies” have come into existence, claiming to highly increase the consumer’s possibility of success in obtaining a loan modification by assisting consumers through the process of obtaining the modification. These companies typically charge an upfront fee of as much as $7,500.00 to begin the process. Further, these companies normally advise consumers to stop making mortgage payments, because mortgage companies won’t even consider a loan modification until the consumer is at least two months delinquent in his/her mortgage payments. This is not always correct, as shown above in point number five. Further, this is very dangerous advice, as becoming delinquent in mortgage payments can put a consumer at high risk of foreclosure. It is important for consumers to be well-educated on their options and try to avoid following bad advice from loan modification companies, most of which are scams.
Various consumer studies show that up to 80% of loan modification companies are scams. These companies typically take a consumer’s money and don’t perform any services for the consumer, or make promises of success to the consumer that can’t be kept. Although not every loan modification company is a scam, if a consumer is considering hiring one of these companies, the consumer should fully research the company to try to avoid any scams. Consumers can always consider consulting with a licensed attorney in their state, as most licensed consumer attorneys can also walk consumers through the process of obtaining a loan modification.
Also, it is always an option for the consumer to try to obtain a loan modification without outside help or counsel. Most mortgage companies and servicers are happy to deal with the consumer directly, as it saves time and can be more efficient.
Overall, consumers should be as proactive as possible in dealing with mortgage issues. It is often easier to address issues earlier than later, especially since mortgage companies tend to be understaffed in relation to the high demand for workouts and loan modifications. Further, it is important to remember that there is never any guarantee of success in obtaining a loan modification. Consumers facing foreclosure should consult with a licensed attorney in their state to make sure they are aware of their options.
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