This week the New York Times (Stock Quote: NYT) ran an interesting and depressing story about how former purveyors of sub-prime mortgages are spending their time. Now many are in the mortgage modification business, and evidently some of them are just as bad at this as they were at writing the loans to begin with.
Let’s take a little trip down memory lane. Back in the heyday of the real estate boom, there were some shady mortgage brokers out there who would give a loan to just about anyone. The upside for the broker was a fat commission which was not impacted by the degree of risk associated with the loan… meaning that if they give a loan to someone who won’t be able to pay, they don’t have to worry about losing their commission. They had quite a few, “loan products” that helped them accomplish their mission, which we like to call, “Whoever Wants a House, Gets a House.” There were interest only loans, where the borrower pays only interest for a period of time, after which the payment balloons. There were stated income loans, which in exchange for a slightly higher mortgage rate, borrowers could essentially put down whatever they wanted under income because the lenders never checked. Other mortgages did require people to report income at all.
Well, as you probably know, when the market tanked and unemployment started to rise, a lot of the sub-prime loans began to go into default. A solution for the problem is mortgage modification, where one is able to negotiate a lower payment on an existing loan, in order to avoid foreclosure and stay in the house.
There are a few ways to accomplish mortgage modification. The Federal government has a program which creates incentives for the banks to change the terms of the loan -- we’ve written about quite a few times (we even built a calculator). It turns out that there are also private companies who, for a fee, agree to negotiate a new mortgage payment for you.
According to the Times article, some of these companies are taking people’s money and doing little or nothing the get the mortgage modified. Now, at least one of these companies, will have to answer for itself in federal court.
“Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company…The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees. The suit seeks an end to FedMod’s practices, and compensation for customers… “Our job was to get the money in and then we’re done,” said Paul Pejman, a former sales agent who worked out of FedMod’s two-story headquarters in Irvine, Calif. He recounted his experience, he said, because “I really feel bad.”
Yeah, we feel really bad too… that there are so many people in the world willing to toss American families into a pit of quicksand, and just when they think they’ve got hold of a branch to pull themselves out, they kick them in the head.
Beware of Mortgage Modification Scams
Mortgage Modification: What to Do If You Qualify
Homeowners Seeking Gov’t Loan Mods Fed Up
The Mortgage Modification Calculator is Here!