Loan Modification Fraud and How To Combat It

Subprime lending activities gave way to subprime mortgage crisis that submerged the American economy and sent ripples to all the major economies of the world. The mortgage market was the worst hit and in turn affected the other sectors of the economy. Sale of houses declined, borrowers started missing monthly payments and it appeared that the new federal bankruptcy laws that were introduced in 2005 to minimize the number of bankruptcy filings failed to yield results. More and more people lost their homes to foreclosure. And there appeared a trend when consumers started using plastic money to pay for their basic needs.

The Obama Administration intervened by introducing the mortgage bailout plan to rescue the mortgage market from sinking further. Referred to as the Make Home Affordable Plan, homeowners can opt for loan modification and refinancing. The bailout plan aims at helping 7 million to 9 million homeowners from losing their homes. As if it were not enough, loan modification plan has given birth to scammers.

Identify loan modification scams

• You may come across people claiming to be government counselors approved by HUD
• There are many loan modification companies operating with names resemble names of non-profit making companies helping homeowners with loan modification.
• Many loan modification companies target the elderly group and charge very upfront fees for getting their loan modified.
• There are many loan modification companies that assure you to save your house from foreclosure and ask you to pay some cash each month. On contacting the lenders it is found that the money that the homeowners had been paying each month went straight into the pockets of the loan modification company.

How will you combat loan modification fraud?

The most important step is to find out the credentials of the company you are hiring for loan modifications. It is always better to take assistance of government approved or state-run services.

New regulation to fight loan modification scam

With the increase in the number of loan modification scams, the various ways to battle it out has also been worked out for consumers. The Foreclosure Rescue Fraud Act 2009 has been introduced recently. The Act aims “To protect the property and security of homeowners who are subject to foreclosure proceedings and for other purposes”. The bill doesn’t allow loan modification companies to take their payments before delivering the services promised by them. It also requires loan modification companies to make more disclosure on contracts that homeowners are required to sign.