There's been a lot of talk lately about loan modifications for homeowners facing foreclosure, a discussion that reached a crescendo on Wednesday when the White House announced details of its "Making Home Affordable" plans.
A woman I'll call Mags (we're preserving her anonymity) had heard the talk too. The suburban Virginia woman in her 60s is homebound, recovering from ankle surgery. Her husband has recently declared bankruptcy. Three months ago, she started contacting her lender to ask for help. She ran into a wall of busy signals and vague answers. So when she heard about a private company that said it could help work with her bank to modify her loan and save her home, she began to investigate. That's how she landed in my inbox.
"How can we tell that this company is legitimate, will do what they say they will?" she asked. "We desperately want to modify our mortgage, but we don't want to be stupid!"
There was a red flag right away. Mags said the company wanted a $3,000 up-front payment.
I e-mailed Mags that day to ask her what this firm would do that she couldn't do for herself. She didn't write back. A few days later, I called. That morning, she'd sent the company a check for $2,881. And she was very sure she'd done the right thing. She'd checked the company out at the Better Business Bureau and there were no complaints. The employees sounded very competent, she said, and the company was advertising on television. I asked her if she'd seen advice on various Web sites telling consumers not to pay up-front fees for loan modifications. She said she had, and she'd asked the company about this.
"They said, 'Has anything else you've done so far worked?"
I talked to Mags about how to get free loan modification help, through the list of approved housing counselors on the U.S. Department of Housing and Urban Development's Web site. I sent her a link to HUD's "find a counselor" Web page. She said she'd already been to the site, but didn't find what she was looking for there.
"There are so many different agencies listed, how do you choose?" she asked, noting that about three dozen are listed in Virginia. "Are they all free? How can you tell?"
In the end she said she relied on the personal recommendation of a co-worker who had also signed up with the for-profit company.
Within minutes, Mags politely thanked me, rushed me off the phone and then didn't respond to my additional e-mails. I had the sick feeling she wouldn't get anything for her $2,881, but for some reason the modification company was more persuasive than I was. She was willing to pay for something that should be free.
So I went back to the HUD site and looked up the counselor that was geographically closest to Mags. When I called, the phone went unanswered. There wasn't even an answering machine to leave a message, and an e-mail got no response.
Government efforts so far to help out troubled homeowners have been equally ineffectual. The Hope for Homeowners alliance program announced last year with great fanfare has so far only helped a few hundred mortgage holders.
It's no wonder Mags would turn to a company that promised immediate assistance. In fact, swarms of for-profit companies are advertising loan modification help right now. They are succeeding because consumers still don't really know where to turn, said Seattle-based mortgage fraud expert Richard Hagar.
"They are filling in where our government is failing," he said. "The government says go get a housing counselor, but when you make a call there is not always somebody there."
Many consumers have hit similar brick walls when dealing with lenders, Hagar said, creating an ideal opportunity for loan modification con artists.
At the unveiling of the White House loan modification program on Wednesday, officials reiterated that consumers don't have to pay for mortgage help. Still, the pitches by for-profit firms can be very powerful, Hagar said.
"They say they have special phone numbers and can get you help right away," he said.
The problem for people like Mags is that criminals and government-backed counselors can look identical to consumers who need help. The organizations listed on HUDs Web site – with names like Consumer Credit Counseling Services – seem indistinguishable from for-profit firms at first glance.
"Whether it's a scam or it's legitimate, it all starts off the same way," he said.
Mortgage brokers piling in
To some struggling homeowners, the salesman behind the mortgage modification sales pitch might sound familiar, says Curtis Novy, a California-based mortgage broker who is also an expert on mortgage fraud. He said many of his former colleagues are trying to make a quick buck in the loan modification market.
"A lot of former subprime loan officers have discovered all this is a money maker," he said. "They made money selling mortgages people couldn't afford and are now making money modifying those mortgages."
One online advertisement targeting real estate professionals recently viewed by msnbc.com promises mortgage brokers a healthy new revenue stream if they attend a class and learn loan modification skills.
"It just makes sense that you learn how to do loan modifications. A certain percent of the sellers you are coming across will qualify for a loan modification and you should be the one providing this service (and earning a fee for doing it)," it said.
Tanisha Warner, a spokeswoman for the Consumer Counseling Credit Services, she said she hears about consumers paying for modification help all the time.
"When people find their backs are against the wall, they are willing to believe that someone is going to help them," she said, while stressing that her firm's mortgage assistance services are free.
Not all for-pay loan help services are scams, though, so it's hard to give blanket advice, Hagar said. Many consumers find it necessary to pay a lawyer to work out a complicated loan restructuring, for example, and there's nothing wrong with paying a lawyer an up-front fee. Hagar said he's also seen some legitimate services that charge a small up-front fee, and ask for larger payment upon the completion of a successful modification. As a rough guideline, he said, consumers should not pay more than a few hundred dollars up front, unless they are dealing with a lawyer.
Some government regulators have begun to take notice of potentially misleading modification services. In February, Connecticut Attorney General Richard Blumenthal announced his office was investigating a company named H.O.P.E. Alliance after it allegedly asked for $1,500 in up-front payments from consumers. In order to afford the fee payment, the firm told customers to stop paying their mortgage, he said. The firm's name also deceptively mimics the name of the government-backed, nonprofit modification effort, Blumenthal alleges.
On the Web site announcing the new White House loan aid plan – FinancialStability.Gov – federal officials also make clear that up-front payments are not necessary to get help.
"Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!" it reads.
Still, that message hasn't gotten through to consumers like Mags. And when HUD's Web site lists phone numbers that go unanswered and banks give consumers the runaround, it's no wonder troubled homeowners are tempted to pay when they finally find someone who will answer the phone.
As federal officials continue to create programs to help troubled homeowners, they should be sure their marketing plans are at least as extensive as those designed by con artists. HUDs counselors should be the first link that lands in a Google search, for example. Public service announcements from the president telling consumers where to get free help wouldn't hurt either.
RED TAPE WRESTLING TIPS
There is no reason to pay for mortgage help. When trying to get a HUD-approved counselor, persistence will pay off. Visit the HUD Web site and try several phone numbers until you reach someone who sounds genuinely interested in helping. Msnbc.com reached a counselor on our second try.
Beginning this week, you can test your eligibility for a government-backed loan modification at the Financial Stability Web site.
If you are tempted to pay someone, don't do so until you get results. You wouldn't pay for auto repairs or a home remodel until the work is done, so why pay a mortgage modification company? As a rough guideline, Hagar said, consumers should not pay more than a few hundred dollars up front unless they are dealing with a lawyer.
People facing mortgage problems often are embarrassed and try to deal with them privately. If anyone in your family might be in trouble, don't be shy. Recommend they visit the HUD Web site – take them to a computer and show them the site if need be. HUD counselors can offer a variety of solutions to consumers. Warner said a surprising number of consumers are able to refinance and avoid foreclosure, thanks to new government-backed programs.
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