We received a call earlier this week from a mortgage broker telling us about a call he had received from a person calling himself a “forensic mortgage loan auditor.”
He wanted to know if this mortgage broker had clients that had been declined for loan modifications and whether he could call them up to see if he could offer them his services.
And what exactly are the services he wants to provide? And, what does he charge?
The person claimed to have the ability to review the loan documentation originally signed by the borrower and he said could find errors made by the original lender in the disclosures.
Once he uncovers these errors in the disclosure, he said he can sue the lender for violation of mortgage lending laws.
For all this, he only wanted a sizable amount of money up front to work with this mortgage broker’s clients. The mortgage broker decided not to work with him, but the incident shows the ever growing changes in the real estate landscape and how careful consumers, brokers, lenders and others involved in the real estate industry need to be.
Call it the bust cycle of real estate services – and it’s booming with scammers, con artists and those who claim to be able to solve the world’s problems, but can’t.
First, loan modification companies promised results upon the payment of a fee.
Loan mod businesses have proliferated despite lenders saying that they do not give preferential treatment to loan modification applications that come through this door. But since millions of consumers have applied for loan modifications and just a very few permanent loan modifications have been granted, borrowers have become discouraged – and loan modification businesses are preying on that discouragement.
Loan modification angst comes from the fact that the government’s HAMP (Home Affordable Modification Program) has been in place about a year and yet the pace of turning temporary loan modifications to permanent is uneven, at best.
Some big banks have fallen woefully behind. Bank or America, which absorbed Countrywide’s loan portfolio moved to address the problem this week by starting an invitation-only program for Countrywide Loan borrowers that would reduce the principal balance on the loans in order to bring the loan value roughly to current market value.
It’s about time. Lenders have been reluctant to cut the principal on these loans, just as they have been reluctant to grant loan modifications.
But the programs that exist now aren’t working, hence loan modification angst.
Banks have some angst internally as well. They have invested millions of dollars to create new software, train tens of thousands of people and basically start up a loan modification program that didn’t exist.
But the consumer’s angst is deeper. The banks initially said (and the OCC confirmed) that consumer’s credit history would not be dinged during the trial loan modification phase. And yet, from the first day, lenders have reported the trial loan modification payments as “partial” payments, tanking borrowers’ credit scores.
All this angst makes a fertile ground for mortgage modification scams. The company that called claims to be a “loan auditors.” If you give them permission, they will comb through your original loan documents to find issues with the documents that supposedly will save your home from foreclosure.
However, as the Arizona Attorney General’s website clearly states, you should avoid paying anybody upfront on the promise that they can save your home from foreclosure. Many other states have put similar statutes on their books. In addition, attorneys in some states are prohibited from soliciting new clients for mortgage modification work, although they can help you if you are already a client.
While there are many legitimate companies out there, including those that rightfully audit mortgage loans, there are many community groups, state agencies and not-for-profit companies that will work with borrowers for free.
For those homeowners that have seen their dreams come crashing down and have been turned down for a loan modification or have received a trial loan modification but can’t get the lender to commit to a permanent loan modification, the idea of getting even with the lender might be quite appealing.
But there is one rule in real estate that every person should remember: that rule is Buyer Beware.