FTC and US States Crack Down On Loan Modification Scams

Yesterday was a busy day for many news writers. There were articles in Reuters, Los Angeles Times, and Seattle PI.com about the crack down on loan modification scams. It's about time that the Government directs their attention towards differentiating between legitimate and illegitimate loan modification companies and exposing the differences ( no up-front fees, not asking for deed or interest in your property, reasonable fees, misrepresentation as a lawyer or lawfirm, etc...) as opposed to just putting us all in the same category.
Deb Bortner, a Washington State Department of Financial Institutions spokeswoman was quoted saying, “ there aren't enough HUD counselors to meet the need of the state, and that there were dozens of legitimate loan modification companies that were operating legally”. However, the Assistant Attorney General James Sugarman said that he knew of NO commercial loan modification business in the state that has the required certification from the Department of Financial Institutions. So the AG and the DFI have conflicting understandings of who is operating legally, and who is not. Now if there is a dispute on what the required certifications are within different departments of the state, how can they possibly try to prosecute companies for not completing the required certifications? The state doesn't even know what they are, yet they impose FELONY penalties for violations. The Attorney General Rob McKenna advised consumer facing mortgage pressures to seek a HUD mortgage relief consultant. (Really? Maybe he should try it before he advises his residents to....)
Washington is actually one of three states that has still not changed their legislation, and is putting their residents at further risk because of it. I don't know of any modification company that is taking residents from Illinois, due to their shotgun response. Washington D.C. Prohibits ANY “for profit” business from assisting homeowners at risk. So as a business owner, if my NET costs to do a modification are $800, and I charge the homeowner $800, I am in violation. Even though we can illustrate that we didn't make a profit, we still charged for the service. So if legitimate companies can't help, HUD and other “free” agencies have said numerous times that they are 1)inadequately staffed and 2) inadequately experienced to handle the influx of requests, then what are the residents of these states supposed to do?
The Washington State DFI considers it, “reasonable for loan modification companies to charge $750 for preparing a hardship statement and household budget to present to a lender and another $750 for negotiating better mortgage terms. Higher charges may be reasonable in complex or especially difficult cases.” This was released as of yesterday. PMC is proud of the fact that we have NEVER charged a client more than $1500 for our services. Furthermore, any affiliate that we've used has never asked for more than $2000, and this is in EXTREME cases. We are also pleased with our progression payment system, which allows clients to get immediate assistance without having to pay everything at once. This has been very valuable in helping homeowners that are really in a financial bind. It also shows our commitment to all homeowners regardless of income level, in an effort to help out our fellow Americans.
So this morning, Bloomberg came out with a tally of 1.5 Million Foreclosure fillings in the six months through June. Home prices dropped an average of 18.1% from last year in 20 major metropolitan areas, making it next to impossible for almost anyone to refinance. In addition, the unemployment rate rose to 9.5%. The Mortgage Bankers Association said, “Defaults by suprime borrowers with poor credit histories spurred the housing recession, and spread to prime borrowers as home prices and sales declined. Prime fixed rate home loans to creditworthy borrowers accounted for 29% of new foreclosures in the first quarter. One in Eight Americans is now late on a payment or already in foreclosure.” This is a clear illustration that it's not just subprime borrowers that are having problems, this problem is affecting EVERYONE. More than 8.3 Million mortgage holders owe more than their homes are worth, if we have even another 5% decline, it will add another 2.2 to that figure. That would mean over 10.5 Million homeowners that would be in a “negative equity” situation.
Anyone ever watched Penn and Teller's show on Showtime? Well I'm calling that on JP Morgan Chase. They were recently quoted as saying that they have 155,000 applications in for modifications (it's much higher than that), that they have modified 138,000 of those applications. If this was the case, then why were they recently scrutinized for the exact opposite? Wells Fargo declined to comment. Bankruptcy Attorneys are particularly critical of the banks efforts saying that , “they are largely a farce”.
Here's a few questions that are food for thought: Where were the FTC and all of these Attorney Generals when these “predatory” loans were being written in the first place? Where are the lawsuits being filed against these lenders for not only their deceptive practices to get the loans originated, but for their very well documented antics at “dodging” homeowners that are looking for assistance? Who is writing the legislation and “rules” for legitimate loan modification companies? What are their qualifications and experience with the current mortgage crisis? Do residents in certain states have the right to file a suit against their State for preventing them from pursuing/getting assistance with their mortgage situation, when the those states have not given them any other viable alternative? Would it be in the FTC and the Nations best interests to contact 20 or so of the legitimate loan modification companies and ask them for their input on regulation of the industry? What do you think?