Loan Modification scams, frustrations, Operation Loan Lies - and now a ding on your credit report!

In spite of the federal government's efforts to ease loan modification procedures for people trying to hold onto their houses, the majority of eligible homeowners have been unsuccessful in receiving modifications.  

USA Today recently ran a story about the efforts of the Treasury to prod banks to move faster.  According to the Treasury Department, only 9% of eligible homeowners who are delinquent have obtained mortgage modifications under a federal program to prod lenders to step up their pace.  The report lists the number of modifications by 36 lenders since the Obama administration announced it's $75 billion recovery plan in March. 

According to the report, Bank of America's portfolio, since acquiring Countrywide Financial, contains almost 30% of the delinquent mortgages eligible for modification, but only 4% were in modification at the end of July. 

Wells Fargo had provided modifications for 6% of its eligible loans.  Wells Fargo defended their record, saying that they modified more than 240,000 mortgages, many outsie the federal program, and 20,219 under it. 

JPMorgan Chase Bank had one of the best records, having modified 20% of its eligible loans.

Operation Loan Lies

Many homeowners, out of frustration, have enlisted the help of loan modification companies.  And many have fallen prey to unscrupulous and predatory individuals who have taken a hefty fee and left them high and dry.  The Coeur d'Alene Press recently ran a story about Apply 2 Save, a mortgage modification company based here in Coeur d'Alene.  The former vice-president of sales, Steven Lux, settled with the state for $50,000.  As part of Operatin Loan Lies, a nationwide sweep of foreclosure rescue companies, Idaho Attorney General Lawrence Wasden along with 23 other agencies in 19 states and the Federal Trade Commission announced 189 civil, criminal and administrative enforcement actions and investigations of businesses and individuals allegedly involved in unlawful mortgage rescue activities.  In less than 10 months, the attorney general's office received about 400 complaints against Apply 2 Save, from all but 3 states.  Apply 2 Save closed suddenly in May and filed for chapter 7 bankruptcy shortly thereafter.

If you paid money to Apply 2 Save and have not yet filed a complaint with the attorney general's office, call (800) 432-3545. 

The Latest Frustration for Struggling Homeowners

Now Equifax, Experian and TransUnion have issued new guidelines that allow lenders to report new mortgage loan modifications as "partial payment status,"a designation that could lower an individual's credit score by more than 50 points. 

So these distressed homeowners, upside down on their mortgages and unable to sell their homes, qualifying for the government loan modification program but unable to achieve a loan modification, being victimized by con artists, are NOW going to be penalized with a ding on their credit reports if they do eventually achieve success.  What's their alternative if they are earnestly trying to avoid foreclosure?  A short sale, of course.  What was the incentive for attempting a loan modification instead of simply selling short?  Protecting their credit rating.  Now that incentive appears to be gone.

If those homeowners think the process for obtaining a loan modification is an exercise in frustration, they haven't seen ANYTHING yet.  The short sale process is emotionally exhausting.  In spite of their efforts to make the best of a bad situation, I predict many more homeowners will throw in the towel, walk away and let their homes go to foreclosure.  It is just plain too difficult to do the right thing, no matter how determined they are to do it.

I guess it could be worse.  Here's a homeowner horror story posted by my friend Brian Brumpton.