Modification Scams

While the loan origination fraud is largely shut down, the foreclosure crisis has spawned a whole new consumer fraud in the form of foreclosure rescue and loan modification scams. These companies offer to help consumers get a loan modification or to fend off a foreclosure in return for high, upfront fees. A great insider view of how these companies profit on the backs of desperate consumers is available in the receiver’s report in U.S. Foreclosure Relief, which was shut down in response to enforcement action by the Federal Trade Commission and the Missouri and California State Attorneys General. The receiver describes the business as a “high-pressure, cash-up-front telephone sales business targeting distressed homeowners” and gives details on just how these companies rake in incredible profits while stringing along homeowners. In the case of U.S. Foreclosure Relief, the company advertised a “90% success rate” when in fact only 11% of its clients got completed modifications (no details on whether the terms of such modifications offered any meaningful relief or not). Sales agents competed to win a Rolex watch, were told to “stop being so nice” and instead to hammer home to consumers how much worse their problems would get if they didn’t hire a modification consultant, and got paid a bonus if the consumer paid via direct deposit. How profitable was this model? Consumers paid $2950 for “assistance,” and U.S. Foreclosure had gross revenue of $5.9 million, with operating expenses of $1.7 million, producing $4.5 million in profit. Nice margin, huh?

Thinking of starting up such a business yourself but, of course, being honest and legitimate? Think again. The receiver concluded that if the business were run lawfully, profitability would be “severely challenged.” In fact, I recently asked a panel of experts on foreclosure rescue scams if they thought ANYONE, even one of them, could legitimately advertise that they provided loan modification assistance. Given the long odds in getting a loan modification, even with HAMP finally somewhat operational, perhaps the best one can offer is to take on the frustrating work of trying to get a modification. But without some chance of success, perhaps most modification assistance is a mirage.

Comments

[AMC]

Mortgage modification companies exist because there is a need, and no one out is there to fill the need. And scammers abhor that kind of vacuum.

Without bankruptcy cramdown, people who can't afford their mortgages, who are facing foreclosure, are left to the wolves.

Mortgages that are wholly unsecured can be stripped in a Chapter 13 - but Chapter 13 trustees are prohibited from going on the radio and advertising the benefits of stripping second and third mortgages. Mortgage modification outfits are under no such constraint.

There have been some legislative responses to the foreclosure "help" scammers, requiring a bond, no upfront fees, etc. Those are all good measures. But the problem is going to persist because there is simply a deep need for mortgage help in this country that is not being met. Not by HAMP, not by Chapter 13, and not by the mortgage modification scam vultures.

[Christine Rose]

There are Loan Modification scams within the lenders themselves! Our loan is with GMAC, and they nearly forced us into forclosure because of their "Loan Modification" plan. They told me to pay a lower monthly payment for 4 months while my account was under review for Loan Modification, so I did. Never late on a payment. After those 4 months were up, they send me a bill for $4400 for my now delinquent account!! Additionally they reported me as delinquent to the credit agencies that entire time, so now my credit it trashed, too.

I tried to get this story out via PR Web, but they wouldn't distribute the press release, citing that it was intended to cause harm to GMAC. I mean... really?!?!?

I'm putting the press release up on my blog tomorrow (11/13).
http://www.christineandethanrose.com/blog

And GMAC is trying to get MORE bailout from the govt... yes, in addition to the $13+ billion they've already gotten.

[joseph]

i have to agree with both comments above. in many fields of businesses, you'll have your bad apples. but there are many legit modification companies. it is my understanding that the ftc is putting an end to upfront fees; this will kill the modification business. c'mon... really, how many people do you think will pay their fee 'after' a modification is completed? very few. i'll tell you this... not enough to keep a business going. its unfortunate that if the ftc rules against upfront fees, the legit companies will be put out of business. at least the majority of them. i do believe there needs to be some regulation on these companies; as soon they'll be required to be licenses. i'm sure this will keep some of the scam companies from proceeding. would anyone represent themselves if they're selling their home or going to court? no. well... when you deal with the lenders yourself, you're already at a disadvantage. the lenders would rather deal with the homeowner than a disinterest third party... here we go.

[Patches]

Gees! I read your blog Rose. You don't know how many times a day I hear that someones "Mortgage Mod paper work" was lost or they didn't get this or didn't receive that, a fax was not received etc..... There is a pattern with these Mortgage Servicers! As for the Mortgage Mod help I can see why, with my experience just yesterday people need the help. I think that Servicers intentionally segregate their various departments in such a manner that it would increase the likelihood of a foreclosure. Referencing loss mitigation and other related departments. Those departments have to work together but it seems as though they are kept at odds with each other. Reminds me of the Insurance company in that movie "The Rainmaker" talking about the various claims departments.

[lmclark]

I don't have the cite, but I believe Randy Haines, in Phoenix, slammed a company that claimed it was the debtor's fault that a mortgage modification didn't go through, when the proof showed otherwise.

And I tell you, I don't see how a private company other than the lender itself can offer any loan modification services at all that are worth the price. They don't have the authority to bind the lender, they don't have the right to represent the borrower in any binding way, and they charge a fee to do what the borrower could do without their "assistance." Often, the fees they charge eat up the cash that the debtor could have used to help get the loan current.

And I'm hearing more and more cases of lenders playing the "bait and switch" game too -- they claim not to be able to help you unless you in default, then after encouraging you to default, they use the default as an excuse to take the property anyway!

And this is not a new thing either. I know of one person who was told to dismiss her bankruptcy so that they could work something out. She did, and they then posted her property for foreclosure. This happened in 2004. The lender was Citi.

[Patches]

I have heard that also lmclark.... about asking the debtor to dismiss the BK to effectuate a mortgage mod. What about those new POC rules for Mortgages in the Southern District of Texas? Wow!

[Steven Horowitz (aka Bankruptcy Bill)]

We did a cartoon on this topic on the Bankruptcy Bill site at http://bankruptcybill.us/2009/09/19/bapcpa-man-9-bapcpa-man-vs-mortgantua-part-2/

Essentially, it shows BAPCPA Man attempting to use "mortgage modification" unsuccessfully against Mortgantua. And we have some upcoming strips that get into the mortgage cramdown issue.

While the strips try to reflect what's happening, they're also informed by a lot of the posts and comments on this site. So thanks everyone.

[Patches]

Funny! I likes..