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Failure and Fraud Among Loan-Modification Programs
Loan-modification programs often can't help desperate homeowners, and some companies have been discovered to have committed fraud. Other options such as bankruptcy can help people keep their homes.
June 18, 2011 /HomeFamily PR News/ -- Amid the foreclosure crisis, many people are seeking relief from mortgages they no longer can afford through loan-modification programs. However, loan-servicing companies that offer mortgage modification often are not able to help desperate homeowners, and some companies have been discovered to have committed fraud.
According to the National Fair Housing Alliance, a nonprofit fair-housing organization, one in nine homeowners in the U.S. is more than 90 days behind on his or her mortgage payments. Following the housing bust, loan-servicing companies have experienced dramatically increased business by offering to negotiate mortgage modification on behalf of homeowners unable to pay their current mortgages. These mortgage-relief companies frequently collect upfront fees even though there is not much they can do considering the consumer's profile, income and debt ratio.
Fortunately, loan modification is not the only option for overwhelmed homeowners, as filing for bankruptcy also can help people keep their homes.
Loan-Servicing Company Investigation
In April 2010, the NFHA began investigating loan-servicing companies because it predicted that the flood of foreclosures that began in 2007 would result in a proliferation of loan-modification scams. With funding from Fannie Mae and the U.S. Department of Housing and Urban Development, the NFHA studied 150 loan-servicing companies suspected of perpetrating scams based on the companies' websites and initial contact with their representatives, reported The Free Lance-Star of Fredericksburg, Virginia.
The NFHA worked with three member organizations, the Connecticut Fair Housing Center, Housing Opportunities Made Equal of Virginia, Inc. and the Miami Valley Fair Housing Center of Ohio, to test 80 loan-servicing companies, which are often outsourced mortgage-modification departments for large retail banks.
Loan-Servicing Company Scams
Amy Nelson, the director of systemic investigations and enforcement for one of the NFHA organizations said many loan-servicing companies "made promises they couldn't keep and insinuated that they were the only ones the homeowner could depend upon to gain the trust of families facing foreclosure." Further, in the NFHA's investigation report, it said it discovered an industry "rife with corrupt practices" and relayed these statistics:
- 55 percent of the tested loan-servicing companies demanded an upfront fee to perform minimal work such as reviewing loan documents
- 43 percent promised or guaranteed a mortgage modification before learning about the homeowner's financial status
- 24 percent advised homeowners to stop making mortgage payments or to stop contacting their mortgage lenders
- 8 percent encouraged homeowners to give fraudulent information to their mortgage lenders
New Rule Protects Homeowners
Fortunately for homeowners, the NFHA was not the only organization to address the rise in mortgage-relief scams. On January 31, 2011, the Federal Trade Commission's Mortgage Assistance Relief Services Rule became effective to protect distressed homeowners from fraudulent loan-servicing companies.
In its main provisions, the MARS Rule bans mortgage-relief and loan-servicing companies from falsely claiming that they will negotiate a loan modification with a borrower's mortgage lender.
Advance-Fee Ban
Under the MARS Rule, mortgage-relief companies cannot collect any fees until they provide homeowners with a written offer from their lender describing how the mortgage would change if they accept the offer. Companies also must tell homeowners that they have the right to reject the offer without paying anything to the mortgage-relief company.
Full and Honest Disclosure
Mortgage-relief companies also face new advertising regulations under the MARS Rule. In communication and advertising directed at consumers, companies must disclose that:
- Homeowners may lose their homes and lower their credit scores if they stop paying their mortgages.
- Lenders may not agree to a mortgage modification.
In addition, mortgage-relief companies are prohibited from making false or misleading claims about their services, including:
- The cost of their services
- Their probability of success
- Their cancellation and refund policies
- The amount of money a homeowner may save
- Homeowners' mortgage obligations
- Providing legal representation to homeowners
Bankruptcy Options
Importantly, mortgage modification is not the only option for people at risk of losing their homes. For individuals with regular incomes, filing for Chapter 13 bankruptcy can help them get back on their feet and save their homes.
By filing for Chapter 13 bankruptcy, homeowners can stop foreclosure proceedings. In Chapter 13 bankruptcy, individuals create judge-approved plans to repay all or part of their debts over a three- to five-year period. While Chapter 13 gives borrowers more time to reduce and repay debts, all mortgage payments that come due during the repayment period must be made on time.
If you are struggling to make ends meet, contact an experienced bankruptcy attorney to discuss your options and whether filing for bankruptcy is right for you.
Article provided by Derren S. Johnson & Associates
Visit us at www.derrensjohnson.com
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