(Source: Wall Street Journal)
Borrowers Who Hire Firms to Renegotiate Mortgages Rarely Come Out Ahead
President Barack Obama’s foreclosure-prevention plan, announced last week, is designed to give several million troubled borrowers another chance to lower their mortgage payments. But government officials and counseling agencies warn that it also presents a golden opportunity for firms to fleece unsuspecting borrowers.
Under the Obama plan, the government will offer incentives and subsidies to persuade mortgage-servicing companies to offer lower monthly payments to borrowers in danger of losing their homes to foreclosure.
Over the past few years, there has been a proliferation of firms that charge fees for what they promise will be quick results in negotiating with banks to get easier loan terms. In many cases, the firms take the homeowner’s money but never deliver the services promised. Even when the firms do deliver what they promise, they charge fees — often more than $1,000 — for services borrowers can receive free. In July, Congress increased to $360 million the funds it has allocated for foreclosure-prevention counseling to organizations that provide the service without charging consumers.
The publicity about the plan could be “the greatest advertisement of all for these scamsters,” says John Ryan, an executive vice president of the Conference of State Bank Supervisors, which helps coordinate bank regulators. But he adds that his group is working with state and federal regulators to alert consumers and crack down on scams.
In the meantime, fee-charging loan-modification firms “are popping up everywhere,” says John Snyder, a manager at NeighborWorks, a nonprofit group formed by Congress to support community-revitalization organizations.
The Federal Reserve and the Federal Trade Commission have published warnings about what they call “foreclosure scams.” State attorneys general also are issuing warnings and in some cases prosecuting firms alleged to have cheated borrowers. U.S. Sen. Herb Kohl, a Wisconsin Democrat, has introduced legislation that would bar “foreclosure consultants” from collecting fees before they complete promised services. Some states, including California, Maryland, Iowa and Florida, already have laws with restrictions on upfront fees for these services.
Read James R. Hagerty’s full article “Housing Plan Creates Opening for Scammers” in the Wall Street Journal (March 11, 2009)