Loan Mod Firms: Attorney “Backed” or Attorney Representation
Jillayne Schlicke on 07 19, 2009
A story today in the NY Times contains interviews with salespeople who worked for an attorney-backed loan modification firm in California that is now under state investigation for defrauding desperate homeowners.
“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…For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California. “We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.””
Former employees who once sold subprime mortgages switched hats and began selling loan mods. They tried to legitimize the company by hiring attorneys and stating that the company was “attorney-backed” but the story goes on to show that homeowners were not offered direct legal representation and that attorneys didn’t even touch the files.
““Our big sales pitch was that an attorney could do a better job with your loan modification,” Mr. Pejman said. “If you told them these were basically washed-up people from the mortgage industry, or just people sending in paperwork, they would say, ‘Well, why bother? I might as well do this myself.’ ” He went on: “It was misleading to the client. Attorneys never touched those files.” Among the 700-plus full-time employees who worked for FedMod this spring, only nine were lawyers.”
Homeowners who need help with a loan modification: First it’s important to know that lenders DO NOT CHARGE A FEE to modify your mortgage loan. The do-it-yourself homeowner can obtain a loan modification free of charge and there’s lots of online help for the do-it-yourself crowd. If you need hand-holding, HUD-Approved Housing Counseling Agencies will also help you FOR FREE. If you sincerely believe that you must part with money to obtain a loan modification, hire a local attorney, licensed to practice law in your state, someone that you can meet with face to face. Make sure that you will obtain legal representation from that attorney for your loan modification. In addition, it’s worth mentioning again that the WA State Bar Association has put money aside for free legal aid to help homeowners facing foreclosure.
Attorney-backed loan mod firms are fast becoming as worthless as the predatory loan mod salesmen I’ve been warning you about for a year.
In a future post, I’d like to see a full on public discussion on whether or not mortgage brokers and consumer loan companies should start to formally distance themselves from all loan modification sales activity or whether the industry should embrace this group and help them clean up their act.
About the Author: Jillayne Schlicke
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4 Responses to “Loan Mod Firms: Attorney “Backed” or Attorney Representation”
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Jillayne,
I am frequently reminded how little people really know about financing. This weekend I showed a property here on the Eastside that was a short sale. The owner commented it was the lender’s fault for not approving their loan mod.
It was pretty obvious that the high loan balance was well above where it should have appraised, even in the peak housing market. The very nice woman kept saying “everyone keeps asking me what I “do”. She wasn’t making the connection that they were not going to do a loan mod until the owners of the home had reached the limit of what they themselves could be doing to help themselves. The fact that they were a one income household was apparently blocking them from getting a loan mod. They lacked a good reason why the woman wasn’t working.
Expecting your mortgage holder to reduce the loan payment so you can stay at home and not work, was not realistic. But she kept asking “why does everyone keep asking me what I DO?”
I think the basic problem with the loan mod system is the processing of requests that have no hope of approval. It clogs up the system for those who have a legitimate and likely to be approved request.
Still, people run with “there’s no harm in trying” when there is in fact a LOT of harm in trying. Often people buying homes ask me, “No harm in asking…right?” The answer is wrong. There is often a lot of harm in asking.
Jillayne,
I am having a fascinating conversation on twitter this morning with an agent who is dealing with FHA loan request files being “closed” prior to decision.
Apparently there is a fine imposed when the processing time on an FHA loan exeeds x days. So lenders are closing the file out before the fine kicks in, and before they have an answer for the borrower.
Sometimes we trade old problems in for new ones when we “fix” things
Loan Mods do not work……The Fed is finally realizing this. The focus MUST be placed squarely on the VALUE of the property and what the homeowner owes…If not they will walk at a future date anyway. All the statistics demonstrate this with a nearly 70% redefault rate in NV and CA after successful Loan Mods.
People will NOT stay in their upside down homes and sooner or later it will become a short sale or foreclosure anyway.
Its not a question of if……………Just when…….
Nice post, Jillayne, and consistent with what I tell people when they call me asking for my services in modifying a loan. I stress that an attorney is not necessary and that they can (and should) contact their bank directly to discuss their situation. Given the recent federal laws, lenders have a direct incentive to work with borrowers who qualify for a loan modification.
That said, if you can find an attorney to help you, he or she will probably add value as the lawyer should be able to compile your information necessary for the loan modification into a coherent and clear package, that presumably will facilitate modification. In addition, some people may simply rather hire somebody to deal with the issue rather than spending their own time doing so. If that is the case, then hiring a WA licensed lawyer is a good idea given the many restrictions on a lawyer’s practice (basically, and in a nutshell, a lawyer will get in trouble with the Bar if he/she does not provide legitimate services for a reasonable fee). Thus, you are less likely to get “scammed” if you hire a local lawyer vs. a national “loan mod” business.