At the risk of sounding like a spoiled sport about the governments new plan to help struggling homeowners, I must point out the obvious--Any time the government steps in to help they generally create opportunity for scam artists. It's known as "The law of Unintended Consequences". For instance; loan modifications. Sound good on the surface right? You've heard that banks are helping struggling homeowners by changing the terms of their loans to more affordable interests rates. Who would argue with that? Let's take a closer look.
Fact: These "loan modifications" are not available to everyone. I know I know, that's not the hype sold to the public by news outlets but it is fact, and when is the last time "the news" reported the entire story? They are available to borrowers with ARM's (adjustable rate mortgages) and other types of subprime mortgages generally prone to default. However, if you have a conventional loan you have little or no options. Although banks are being increasingly creative, there's still plenty of room for work for the average homeowner. Since ARM's and subprime loans account for a very small percentage of the total amount of mortgages in the US, that equates to few, if any opportunities for the majority of homeowners, many of which are struggling regardless of loan type. Fact: The vast majority of modified loans end up in default and foreclosure anyway and with the rising unemployment rate that's probably not going to change any time soon.
Over the past couple years, companies calling themselves "loan modification" specialists have formed. You may have received a mailing from one and if you did---the best course of action is to file it in the round file cabinet known as the garbage can. These "companies" charge upfront fees and take advantage of distressed homeowners. They claim to stop foreclosure, negotiate lower rates and save thousands in mortgage payments, So--- what's the problem you ask? ---The upfront fees of course and the simple truth that loan modification services are available directly through your lender without third party assistance so why pay someone for a service you can perform yourself...
If you know someone who is considering a loan modification, I would advise not using a third party negotiator. They should contact their lender directly for information on whether they qualify for modification, keeping in mind however, they are a debt collector.
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