BEWARE MORTGAGE LOAN MODIFICATION SCAMS
The current recession has given rise to a large cadre of scammers who recognize tons of people in need and target them as ‘marks’. In this case, the scammers have set their sights on homeowners who are having problems making their monthly payments and facing foreclosure. From the scammers point of view, nobody makes a better mark than those who are desperate for a solution.
Enter Loan Modification Scammers
Fortunately, loan modification scammers are easy to recognize as long as you understand what you shouldn’t agree to, namely:
1. Never agree to pay them money up front
2. Never deal with a firm that isn’t legally qualified. This means that you
should be dealing with a licensed attorney
3. Never agree to doing business with a loan mod/restructuring company
until you have checked them out with the Better Business Bureau and
searched for complaints about them on the Internet.
4. This is SO IMPORTANT we’re going to say it again: Never pay money up
front. Never!!
What is Loan Modification?
Simply stated, mortgage loan modification is a legal agreement between a
borrower and the lender to change the terms and conditions of the existing loan so that it is more affordable. Not every lender will be agreeable to doing this for every borrower. The decision depends upon a number of factors which are usually different for each individual borrower.
Most homeowners who have gotten into the foreclosure situation have arrived there by (a)-having a sub-prime mortgage where the interest rate has suddenly increased and raised their monthly payments beyond their ability to pay or (b)-suffered sudden job loss or catastrophic illness that has had the same result. In either case, losing one’s home is a very serious situation and foreclosure will also destroy one’s credit rating for years to come. Knowing this makes you a prime target for scammers. Your best defense is to understand your situation and know your available options.
What do Lenders Want to Grant a Modification?
Early in 2009, President Obama introduced the Homeowner Affordability and Stability Plan (HASP) as part of his economic recovery package. This plan, to which $75 Billion has been allocated, is designed to modify and restructure existing distressed mortgages so that struggling homeowners will be able to stay in their homes. The plan is also designed to stop the downward spiral in property values by preventing homes from going into foreclosure.
How it works- The HASP plan is intended to focus on mortgage payments and not just property values. It’s goal is to allow homeowners to stay in their homes as long as they can make the new payments, even if property values continue to go down. Under this plan, lenders (loan servicers) must:
1. Reduce monthly payments to less than 38% of a borrower’s gross monthly
income. The US Government then pays the rest of the balance due.
2. The loan servicer can then lower the payments by reducing the interest
rate to as low as 2%; extend the loan period up to as much as 40 years;
and/or forebear the loan principal at no interest. The lender who does so
will be paid $1,000 for each modification granted and will also receive an
additional $1,000/year for up to 3 years, provided that the mortgage
payments are made on time.
3. The borrower (homeowner) can also receive $1,000 off the principal
balance of the loan for up to 5 years for making their monthly payments
on time.
Who Qualifies- The HASP loan modification program is designed expressly for responsible homeowners who have been negatively affected by the recession. To be eligible, the homeowner (borrower) must:
A. Be an owner-occupied, primary residence only (not rented out by an
Investor-owner)
B. Have a mortgage balance no more than $729,750
C. Provide proof that a financial hardship has occurred such as a job
loss (loss of income); substantial mortgage rate increase or
catastrophic medical expenses, any of which were responsible for
placing them at risk of default. An affidavit to this effect must be
provided with the application.
The application for loan modification is really all about the economic interest of the lender. The lender will generally run a Net Present Value test to find
out if there will be more cash flow if the loan is modified. In this case, the US government will be covering any shortfall of cash.
It Takes a Professional
Filing a loan modification application is not generally a do-it-yourself project unless you are extraordinarily gifted in loans and finance. And while there are numerous legitimate companies that will do this for you, keep in mind the ‘never dos’ stipulated above and check them out thoroughly before you sign or agree to anything. Probably the best bet is to hire a licensed attorney in your area who can do this properly for you.
Most of the mortgages that require modification were written by Bank of America; Washington Mutual (now Chase); CitiMortgage; Countrywide; Household; JP Morgan; IndyMac or Wells Fargo and are based on Fannie Mae or Freddie Mac guidelines. If you have a loan from one of these lenders and the future looks bleak, it’s a good idea to secure professional help in filing for a modification as early in the process as possible. Once you are actually in the foreclosure process, it is very unlikely that the lender will grant a loan modification.
One other point. Truly qualified people who handle loan modifications for distressed homeowners are not only qualified legally, but usually have good contacts within the lending institutions that makes them successful. Good luck!
Tagged with: Better Business Bureau • Business Loan • Catastrophic Illness • Credit Rating • Current • Doing Business • Facing Foreclosure • Interest Rate • Lenders • Loan Mortgage • Mortgage Interest • Mortgage Loan Modification • Point Of View • Prime Target • Recession • Restructuring • Scammers • scams • Serious Situation • Sub Prime Mortgage
Filed under: Loan | Credit | Mortgage | modification
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