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Common Signs of Loan Modification Scams and How to Avoid Them

For those considering loan modification, times have likely been better. Generally, people only seek information on modifying their loans after having some difficulty keeping up with their mortgage payments and other bills. They see this as an option to stay in their homes and continue getting their finances back on track.

Unfortunately, some loan modification companies are preying on these individuals with false promises and guarantees that are too good to be true. Since the Home Affordable Modification Program, or HAMP, began many opportunistic individuals, including some loan modification attorneys, have attempted to profit.

Here are some warning signs that one of these loan modification companies is attempting to add you to their list of victims.

1) They ask for upfront payments. This is one of the most important flags because of its predatory nature, and also because it is illegal to ask for money before their work on the modification has begun. Also, you should never make your monthly payments to the loan modification attorney or any other third party. Your loan is still serviced by the lender and that’s where your payments should be sent.

2) They offer results that are too good. While the purpose of the program is to reduce your monthly payments to an affordable amount, either through spreading out the repayment period, reducing interest rates or reducing the principal, if the offer sounds exceptional then be wary. Any “guarantee” or “promise”, whether it is an end to foreclosure proceedings or even acceptance into the program, should be approached with caution.

3) They can’t, or won’t, explain the services they are going to do. While the loan modification process can sometimes seem difficult or tedious for homeowners, the process is relatively straightforward. Your lender supplies a packet that must be filled out, generally including an authorization to release tax information, proof of income and bank statements, as well as an explanation of why you are having difficulty making the payments. There is no mystery or secret to the process and any reputable loan modification company should be able to explain the process to you.

Loan modifications can be confusing to many people but guard yourself against potential scams by watching out for upfront payments, too-good-to-be-true results, and mysterious methods.

Loan Modification Companies How They Work

If you are searching the internet for loan modification companies, this article will help you narrow down your search by teaching you what to look for.

Loan modification companies are used when a homeowner is struggling to make his/her payments and needs help. This can be caused by a loss of income, a type of hardship or an increase in your interest rate resulting in higher monthly payments. I know I suffered from a combination of all three of these at one point. I was in construction, my daughter needed two eye surgeries that were not covered by our insurance and my interest skyrocketed when my loan adjusted causing my payments to double. Yes, double!

The perfect candidate for a loan modification is someone who has higher interest rates, an adjustable loan and still has an income coming in. These tend to get approved quite easily.

So, what does a loan modification company do? Well, instead of you calling your lender and trying to resolve the problem with your loan yourself, they handle this for you. It is a very complex process that can take months to resolve and if you don’t get it right you’ll get denied. Or, even worse, if you don’t know what you are doing you could actually get a loan modification that does you no or little good and you’ll be stuck in it. There are no second chances with these.

It just makes sense to hire a professional in these cases and get the best possible resolution. If an experience loan modification company can get you a 4% fixed for 40 years loan and you get your current adjustable rate frozen for 3-5 more years, the difference in your payments each month with be substantial and the difference over the life of your loan will be tremendous!

The problem is, the press tends to highlight the negative aspects of loan modification companies. You never here stories on the news about a good company that just saved someone $800 a month on their mortgage payment! Instead, you here the exact opposite where some company took a homeowners hard earned money and didn’t accomplish anything. Both of these situations happen all the time, so you need to know what to look for in a good company.

Here are some tips:

1. Make sure they are licensed by the DRE in whatever state they are operating out of. They need to have a license or be an attorney to take payments for negotiating loan mods.

2. Just because someone is an attorney does not mean they are honest! Find out the attorneys name and check their bar status and see if you find any complaints against them. If there are excessive complaints you may want to think twice – especially if they are related to loan modification.

3. Choose a company that makes the most sense! Talk to a few different companies. Don’t make any rash decisions! If one company is just pushing for you to pay them and promises things that sound too good to be true, they probably are. Find a company that is extremely professional and outlines a good plan for your unique situation.

4. Get pre qualified! Did you know that some companies can actually have an underwriter call your lender and see if you will qualify for a loan modification under current guidelines? This way, you should know before you go in what kind out outcome to expect.

5. Check references. See if they have actual homeowners who have used their services that you can call. See if they can email you examples of their past successes. If they are a good company, they will have no problem with this.

I wish you luck in lowering your mortgage payments and hope this will help you make a wise decision.