Beware of Mortgage Modification Scams

Mortgage Modifications have gained popularity in recent years, but many Mortgage Modifications Company are in legal turmoil due to unfair business practices. Often they will promise to lower Mortgage payments but cannot deliver on those promises and leave Homeowners in a worse situation than before. Currently there are several Attorney Generals in various states who are pursuing Legal actions against these companies.

Advance fees and demands that a homeowner stop making payments are key hallmarks of a scam. A Federal Trade Commission rule that took effect last week makes it illegal for companies to tell consumers to stop paying their mortgage, unless they also tell them that they could lose their home and damage their credit rating by doing so. A federal ban on collecting advance fees under the same rule will take effect at the end of this month.

It is already illegal in Florida for a loan modification company to charge a fee up front, and the state attorney general's office confirmed to HuffPost that it is currently investigating NHR, partially based in Florida, for "unfair and deceptive practices with regard to collecting fees and utilizing a client contract."

FTC spokesman Frank Dorman said the volume of loan modification scams has significantly increased with the uptick in foreclosures in the past few years.

"While the scams have existed in some form for awhile, as delinquencies and foreclosure filings have risen the opportunity for loan modification and foreclosure rescue scams has increased," he said. "We advise people to avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company. Many of the complaints received by the FTC include not being able to contact the company after paying for mortgage refinance services, not being able to get their money back and not receiving proper help from the company after paying for services."

It is always recommended to that you get legal advise from an Attorney prior to entering into any Loan Modification agreement. Many Bankruptcy and financial services Law firm offer modification options as well. It is often better to hire an attorney's office to do your Modification because they have the backing of a real Lawyer. Many Loan Modification Companies are only loosely affiliated with an Attorney and many have no legal expertise or backing whatsoever.

The Carbone Law Firm has a Loan Modification Expert on staff and they have a better than average results when it comes to Modifying loans. Most Importantly we have been in business for over 17 years and are based locally in Wall, New Jersey, so you know who you are dealing with and where your money is going. For a free Consultation call us at 732-681-6800 or visit us on the web at www.cerbonelaw.com for more information.

Cramdown Bill Revisited

With foreclosures continuing to climb and midterm elections just a year away, Congress once again is preparing to tackle the mortgage crisis aggressively. High on many a wish list: a renewed push to allow so-called cramdown, which would let bankruptcy judges adjust the terms of home loans to give borrowers relief.

The banking industry hates cramdown from the idea of cramming deals down lenders' throats, but Democrats argue that earlier efforts to fix the housing mess have not done as well as hoped. Moody's Economy.com MCO estimates that 3.8 million homes will enter foreclosure this year, up 41% from 2008. No surprises, then, those lawmakers are getting an earful. "We have folks calling our office every day," says Senator Jeff Merkley D-Ore., who is pressing Treasury to streamline its program to restructure mortgages.

Capitol Hill is now again looking at other options. One bill, introduced by Senator Jack Reed D-R.I. on Sept. 30 and co-sponsored by Merkley and two other senators, would force lenders to pause before they foreclose and to offer borrowers a break on their mortgage bill if they qualify for help under the Treasury program. Under the same proposed law, states could require mortgage servicers to enter mediation with borrowers before being allowed to foreclose. The bill also would give the states $6.4 billion to help homeowners stay put. "We're really trying to light a fire under the Administration," Merkley says.

Others in the Senate are considering the temporary suspension of home-loan payments or brief monthly mortgage subsidies for unemployed homeowners. House Financial Services Committee Chairman Barney Frank D-Mass. is drafting similar legislation.

The Administration is considering new options, too. One would support the broader housing market by extending a homebuyer's tax credit and making it easier for Fannie Mae FNM and Freddie Mac FRE to finance mortgages. Another would fund state housing agencies and independent mortgage banks. A Treasury spokeswoman noted that the Administration's programs have done more than previous efforts but said it "aggressively continues to build on our progress to date."

Many congressional Democrats think mortgage lenders need to feel the lash before they'll speed up mortgage workouts. Those critics, led by Senator Richard J. Durbin D-Ill., figure banks and mortgage servicers will do their best not to cut principal or interest rates on a mortgage. Lenders want to avoid, or at least delay, the loss they take from lowering what homeowners must pay, critics say. And despite an Administration plan that gives subsidies to mortgage servicers who agree to rework loans, many believe the service firms still gain too much from the fees they collect in foreclosure to bother working out a loan.

Durbin and other lawmakers are calling on Democrats to support what is seen as the party's nuclear option: cramdown. The proposal, which sailed through the House last spring, only to stall in the Senate on a 45-51 vote, authorizes bankruptcy courts to adjust mortgages. If Durbin's bill were to pass, a judge could reduce principal or interest rates on home loans and stretch out mortgage payments, something bankruptcy courts can do already with virtually every other kind of debt.

Supporters say cramdown would free homeowners from debt they can't afford while prodding lenders to cut deals before reaching the courthouse. A bankruptcy-court solution would also cost taxpayers little or nothing. Detractors argue cramdown would spook the mortgage market, driving up borrowing costs and making loans harder to get. Undeterred, Durbin, the second-ranking Senate Democrat, is willing to attach a cramdown provision to any convenient bill if it won't get a hearing on its own. The proposal "will always be part of the conversation, if for nothing else than to scare the [daylights] out of everyone," says one senior Senate aide.

The financial industry, which used major muscle to kill the provision last spring, is arming for the fight, too. "The vote in the Senate was so overwhelmingly close, we're always worried," says one lobbyist. The big banks are leaning on community banks for help: These institutions were largely innocent of the worst excesses of the crisis and tend to be viewed much more favorably on Capitol Hill. "We are kind of the white hat," says a lobbyist for smaller financial institutions. "You'll see a lot of the industry try to hide behind us."

Given the industry's stance, supporters of cramdown say a forceful campaign by the White House would help. President Barack Obama supported it during the campaign and soon after his election, while his chief economic adviser Lawrence H. Summers wrote columns in favor of the proposal last year. But congressional sources say the Administration did little to push for passage of the bill last spring possibly because Obama was reluctant to place further stress on already fragile banks. Now one Treasury official says the department has "no immediate plans" to revive the measure. Yet even without stronger White House support, Durbin might attract enough senators to embrace the bill if foreclosures continue to surge.

Foreclosures Vs. Loan Modifications (The Truth)

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.