The Latest Scam

[poorold]

If you've been subject to phone calls by collection agencies, then you know their single focus is to get every dollar until they are a) paid off in full or b) you stop paying because you realize you can never pay it off in full and YOU decide to take charge of your debt--one way or another.

Well, the latest scam involves the banks and mortgage companies preying upon people with what are called "loan modifications."

You've all read about the default rate on those "helpful" laon modifications--I believe over 60% and rising.

The banks DO NOT reduce principal. The banks only lower the interest rate.

The SCAM is that people are led to believe they will be able to keep their homes and the banks are helping them by lowering their payments.

I think this is NOT THE CASE.

The banks are so backed up with foreclosures they have decided to extend "HOPE" to the gullible. The gullible then fork over a lesser amount each month until a) they can't even afford that or b) the grace period is over, the payment amount goes back up and the gullible default for good.

in my opinion, this is WORSE than what collection agencies are doing to get the next dollar out of a debtor because the banks tell you they are trying to "help" you.

At least the collection agencies are upfront--brutally so most of the time.

I just yesterday dashed the "hopes" of a friend of mine who thought she was being "helped" by the bank to keep her home. She now realizes that she'd be losing the house when the payments went up in 6-12 months and all she was really doing was throwing good money after bad.

I also suggested she could stay in her house quite a long time. The bank rep is sending a "loan modification package" and told her to make the reduced payment for October in the meantime.

I told her to forget about making the payment, throw the package in the trash when she gets it and then when the bank calls, tell them she didn't get the package and didn't know she had to make the payment without getting the package.

I figure she could use this same story for a good six months and save a lot of maney to move and get on with her life.

[hereforinfo]

I agree, the modifications are somewhat of a scam. The lenders who agree to participate are merely following the requirements that our government created for this sham of a program. The guidelines state that the lender will give some sort of reduced payment (usually a random amount) for a 3 month trial period and will consider some sort of permanent mod during that time, and that the final numbers and paperwork won't be given to the homeowner until after the 3rd trial payment is made. The fine print often states that a final modification is subject to the investor's approval. So the servicer/lender who is working on the mod often doesn't know if it's going to be approved until after the trial period is over. It's just a bunch of steps the government "requires" of the SERVICER. The investor who owns the loan on the back end really has the final say, they can't be forced to approve any modification because doing so would potentially violate their pooling and service agreements. As long as the servicer is taking the mod applications, giving some random trial payment for 3 months, and "considering" a modification, they are complying with HAMP, even if the investor on the back end says no after all of that. A huge percentage of these mods get denied at the end of the trial period, after the borrowers were assured it was going to go through.

So yes, they are mostly a scam and in many cases delay the inevitable. It depends on the lender. There are a couple (Chase is one of them) that have ended up actually modifying about 20% of the loans that applied. Most of the rest of the lenders/servicers have only permanently modified about 3-5% after the trial period. Unfortunately, there are so many things that happen behind the scenes. Contracts, regulations that were set in place long ago, policies, lien positions, potential lawsuits, and mortgage insurance that make most of these modifications impossible to do. 2nd mortgages make it even trickier. Just too many roadblocks.

I don't believe in principal reductions for anyone, and I hope that concept never happens. Half of my state is underwater on a mortgage. I do believe they should make it easier for people to get permanent rate reductions and/or refinance, starting first with people who have lost their job, then people with adjustable rates that skyrocketed, and then the rest of us who just want to get a lower rate to take some of the pain out of having negative equity.


But you can thank Obama for this scam. I'm sure his health care plan will be just as costly and ineffective. Many parts of his mortgage modification plan have not even been implemented yet - the 2nd mortgage modification plan, the 125% LTV refi, etc. It's all just talk, there are too many roadblocks that can't be overcome to make those things happen.

[justbroke]

I don't blame Obama, and I don't think it's a scam. To be a scam, they must be defrauding you in some way. For the Bank, it's a win-win as they stave off foreclosure. Regardless of whether 50% of modifications not working, it is keeping people in their homes longer. I just think that the Banks don't do a good job of looking at the front-end and back-end DTI and reject more people. However, when they reject more people, then everyone will complain that they are being selective and not helping. They cannot give away the homes.

Hey, but that's me. Remember, the lenders don't have to do anything, they are not bound by HOPE or HAMP or whatever the "program du jour" is.

[Flamingo]

There are scams out there like this that take advantage of folks but they are not coming from the main bank holding the mortgage. They are coming from outside sources and folks in a bad way trying to save their house fall for them. Modifications from one's own bank are not intended to be fraudulent but can be very confusing to many during difficult financial times due to all that is involved. Many people are falling for outside scams that offer to help them avoid all sorts of issues and they end up signing over their house to someone else. The best thing to do when in a foreclosure situation is get educated on the process and attend any and all foreclosure seminars that are offerred free by one's state or county - our newspaper lists them weekly in the paper for people to freely attend to avoid scams.

[justbroke]

Yes, I've read about the "companies" that are out there scamming people from their good hard earned money. However, I don't equate them to a bank offering a modification.

As always, Caveat Emptor.

[hereforinfo]

Perhaps "scam" is the wrong word. Maybe "sham" is more like it. Smoke and mirrors. Take your pick. The programs aren't doing much to help the housing market or the economy. The biggest problem right now is lack of jobs. If 10% of homeowners don't have a job, then it doesn't matter how much you reduce the interest rate if they don't have the income to pay for anything. The truth is, there's not a lot the government can do to help people with their mortgages, because they can't get around all of the regulations that have been established.

[justbroke]

Perhaps "scam" is the wrong word. Maybe "sham" is more like it. Smoke and mirrors. Take your pick.

I like the word sham. I only like it because this is really the Government pulling one on you. The Government, last administration and definitely this one, has led people to believe that HOPE and HAMP were going to "save" people's homes. They just delayed the inevitable, that's all.

I totally agree that the problem is really income (jobs), and may people lost lots of money (both in income and on the market). In order to get elected or re-elected, these politicians have crafted these wonderful plans (mortgage modification plans) to make people feel good.

The fact is, that before about mid-year 2009, the HOPE and HAMP programs helped practically no-one and by design, they are not mandates, and are just trying to push the problem forward in time, with the hope that the jobs and the stock market come back.

I hate to be the one to say this, but... yeah, it's a sham, sponsored by all your favorite people in the District we call Columbia.

Join Justbroke's 2010 Change We Can Make Happen. Vote them all out in the Primary and in the General Election. Please, Vote... NONE OF THE ABOVE!

[hereforinfo]

I like the word sham. I only like it because this is really the Government pulling one on you. The Government, last administration and definitely this one, has led people to believe that HOPE and HAMP were going to "save" people's homes. They just delayed the inevitable, that's all.

I totally agree that the problem is really income (jobs), and may people lost lots of money (both in income and on the market). In order to get elected or re-elected, these politicians have crafted these wonderful plans (mortgage modification plans) to make people feel good.

The fact is, that before about mid-year 2009, the HOPE and HAMP programs helped practically no-one and by design, they are not mandates, and are just trying to push the problem forward in time, with the hope that the jobs and the stock market come back.

I hate to be the one to say this, but... yeah, it's a sham, sponsored by all your favorite people in the District we call Columbia.

Join Justbroke's 2010 Change We Can Make Happen. Vote them all out in the Primary and in the General Election. Please, Vote... NONE OF THE ABOVE!

You pretty much articulated what I was trying to say, but you said it much better!

[killinstinct]

I know that this story has been told Ad-nauseaum, but for us the BK journey began in February of this year when I realized we had $100 for groceries for a family of 5 for two weeks.

I make a good living, have a dependable income, had a fixed rate mortgage, but could no longer afford the $2400+ in mortgage per month. We were scraping by. We needed clothes, our cars needed maintenance. It was impossible to get by without plastic.

So I finally said, if we can't get by without plastic, we can't get by.

Fast forward to today: we rent for less than half what our mortgage was. We have food, we have $$ in the bank. I can see a future.

We were starving, scraping by, all for an investment that was crumbling. In our little neck of the world, at least, I can honestly tell you that real estate speculation ruined everything.

[tkharvey]

"hereforinfo", I couldn't agree with you more. I think this whole "Loan Mod" thing is a smoke screen, for the banks/government (whatever) to have it appear that they are trying to help us troubled homeowners. I, too, was told that we qualified for our loan modification and to make trial payments, which we did in a timely manner. After my three payments were up we received a letter stating that because of our timely trial payments "we would like to offer you a more permanent arrangement". I sent in the paperwork required only to be told that we don't qualify under the HAMP program, but there might be another program we qualify for, but only if we send two more original payments to show our good faith." Yeah right...

[IBroke]

I, too, was told that we qualified for our loan modification and to make trial payments, which we did in a timely manner. After my three payments were up we received a letter stating that because of our timely trial payments "we would like to offer you a more permanent arrangement". I sent in the paperwork required only to be told that we don't qualify under the HAMP program, but there might be another program we qualify for, but only if we send two more original payments to show our good faith." Yeah right...

Did they offer you "trial payments" under the HAMP or "forbearance payments"? This is something many people mix up and blame HAMP for. "Forbearance Payments" have nothing to do with HAMP.

Under HAMP, they should have requested your paperwork and eligibility PRIOR to accepting all 3 "trial payments".

Did they send you an official HAMP trial period payment plan you had to sign and return, indicating the due dates and amounts? If not, your 3 payments were no HAMP trial payments.

I don't disagree that HAMP only provides help to the "tip of the iceberg", but it's also important to be very accurate on who's to blame (lender and/or HAMP).

There was a poster on this board who blamed HAMP for not getting a modification after her "HAMP trial payments". Turned out she started her "HAMP-trial" before the program was actually launched...hmm...

[tkharvey]

Yes, Ibroke, they did send me papers to sign and return indicating the dates of the three trial payments. They were not forebearance payments. These payments were calculated under the HAMP to bring down our payment to 31% of our income. I'm not "blaming" anyone. My point is that this whole Loan Modification program isn't benefiting many people at all.

[IBroke]

Yes, Ibroke, they did send me papers to sign and return indicating the dates of the three trial payments. They were not forebearance payments. These payments were calculated under the HAMP to bring down our payment to 31% of our income. I'm not "blaming" anyone. My point is that this whole Loan Modification program isn't benefiting many people at all.

Well, in that case, that really s**ks.

[hereforinfo]

Yes, Ibroke, they did send me papers to sign and return indicating the dates of the three trial payments. They were not forebearance payments. These payments were calculated under the HAMP to bring down our payment to 31% of our income. I'm not "blaming" anyone. My point is that this whole Loan Modification program isn't benefiting many people at all.

The HAMP guidelines given to servicers from freddie and fannie state that the final modification amount won't be determined or approved until the end of the trial period, at which point the investor makes the final decision. The guidelines also state that services can put in the documentation that it's all subject to investor approval, but I'm guessing most of them leave that out. It's very misleading. Many people assume that once they get into the trial period it's a done deal, when in reality very few make it beyond that after being told verbally that they will get this or that. The terms change several times throughout the process and then the investor ends up denying it. Most of the big lenders are allowed to use their own proprietary NPV test, so they can manipulate the outcome. Their NPV formulas are as secretive as the FICO scoring model so who knows what they end up denying for.

Here's an interesting article from a few months ago:

http://online.wsj.com/article/SB124338503008056785.html

I also found the following blog entry very interesting, and maybe it sheds some light on why banks don't want to modify. I put the most interesting part below. Perhaps that's the reason there are so many REO homes around here that are just sitting vacant and not listed for sale.

http://mandelman.ml-implode.com/2009/09/geithner-is-allowing-banks-to-recapitalize-on-backs-of-homeowners-or-games-bankers-play/