Mortgage Modification Originators: Here Comes The FTC

Real Estate Technology with Content, coding, marketing, host.

How many phone calls have I had over the last 12 months from "mortgage modification companies" promising thousands of dollars to me if would have my loan officers refer to them people who could not refinance but were in trouble. I said no, every time. Sometimes I had some laughable conversations with the people calling. Why did I not want to get involved?

(A) I'm a lender and have my own business I need to focus on. (B) Because I knew better and I knew this would be a headline in the very near future:

"Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams"

Right, your company isn't a scam. I know because that's what you've told me when you called me.

So what is the litmus test for a scam?

71 companies are using "deceptive ad practices" and are being sued or are under investigation

22 companies gave the impression they were associated with a Federal Agency (such as HUD) they are shut down and may be facing Federal criminal charges.

100's of companies charge upfront fees and are under investigation

Dozens of companies advertise a false success ratio and are being sued or are under investigation

Who is being investigated? Everyone from the originator to the mid-level employees and the company principles. If the originator made false statements, even as a result of training or information provided by the company, they can be held accountable under the law.

You can bet when activity like this is discovered by attorneys they are going to source out any people who feel they were harmed or slighted and create a class for a class action suit. Who can be named in the suit as defendants? All those same people from originators to company owners.

So, for all you loan officers and real estate agents out there who allied yourself with one of these companies (and the investigation list is growing daily) you may want to re-think your alliance, ask yourself if your company or you made any false statements, took money in advance, failed to deliver on guarantees or promises, and anyone has applied but not been issued a modification but you still made money.

Attorneys are able to take modifications as a case. They are allowed to charge a retainer fee. The only attorney I ever referred clients to asked for a $500 retainer fee which HE RETURNED TO THE CLIENT if the modification did not go through. There are a lot of modification companies out there who are owned and run by attorneys. That alone would never make them legit. How many attorneys are disbarred or sent to prison every year just for real estate fraud? Investment fraud? Insurance fraud?

Reader, if you are facing foreclosure call 1-888-995-HOPE or your local HUD office if you have already contacted your lender and they are not working with you. DO NOT STOP when the little hourly paid operator who answers the phone at your servicer says, "no". They do not have the authority to say anything else. The company hopes you get off the phone and find some way to fulfill your covenant to repay the loan you promised you would - that's why the first few people you talk to say "NO".

I will also post something about scamming from the other side, dead beat losers who just refuse to repay their mortgage even though they have made a life covenant with the lender to do so. But that's for another time.

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

Comments (52)

Norma Brandsberg
Marks Realty Co. Inc., Lynchburg, VA, 540-586-9496 - Forest, VA

The Realtor community is partly at fault here as well. I have blogged on this in the past. Some of us steered customers into homes we should have known they could not afford. I know cause I lost customers who wanted to hear they could afford more than I was showing them. You as an agent have a responsibility to be honest with your customers above your paycheck.

May 18, 2009 02:02 AM
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY

Most loan mod firms in my area seem to be attorneys looking for bankruptcy clients and agents looking for underpriced listings. 

May 18, 2009 02:05 AM
Home Loan Search.Online
Home Loan Search Online - Newnan, GA

Ken, have you noticed the GA Dept of Banking and Finance are now starting to go full force after these companies in GA?

I've had family members receive loan mod notices in the mail that look like they are from a government agency, but are a waste of their time.

May 18, 2009 02:29 AM
Natalie Langford
Realty Negotiations - Winchester, VA
Winchester, VA Real Estate

Hey, Ken.  So, the FTC is going to break out a can of WA?!  Kewl!  I hope consumers who read this will call the numbers you provided in your post.

For anyone who hasn't read Lenn Harley's response, please do so.  While the topic is inspired by sick individuals, her wit is sharp!

May 18, 2009 02:59 AM
Roland Woodworth
Blue Cord Realty - Clarksville, TN
Blue Cord Realty

seems as if some people never learn... This will be insteresting to see the out come

May 18, 2009 03:42 AM
Russ Msrtin
Perl Mortgage - Chicago, IL
Residential Mortgage Advisor

You can follow the scumbags in the mortgage business by whatever is hot.  The loan mod guys were pitching money merge accounts previously.  Prior to that they were the condotel gurus.   Before that, it was the option arm.  Before that, it was subprime. 

May 18, 2009 04:09 AM
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Karen - thanks for your comment!

Missy - no doubt about that!

Matt - I have yet to see anyone who truly needed a modification be denied if they qualified and if they followed a few basic rules. Rule 1 is "never give up".

Lenn - you're a poet! A vociferous one at that and with passion like you have to protect customers I think YOU should be the head of HUD. If I haven't ever said that before.

Ryan - you mean this isn't what is meant by "find a need an fill it".

Elizabeth - yes, people are helped by loan modifications. Every lender has a modification program in place and customers have the information in their hands to apply for a modification. Most of them give up when the lender says "no". Unlike some other things with mods "no" does not mean "no". It means "go away and find some way to meet your obligation".

Mark - I'll address HOPE NOW in a couple of comments ... stay tuned.

John - you are absolutely correct. If the "programs" actually did what they claimed to do the scammers would not exist - at least not so prolifically.

Bryant - agreed and they are not all scammers. We'll see a sampling of who is and who isn't when local justices get involved.

Janet - well, there you have it. Exactly what this was all about.

Renee - when it first started I hit the ceiling. I knew thousands of idiots would suddenly become "Loss Mitigation Specialists". In fact I blogged about that here on AR and in other places, too.

Matthew - I know of at least two former AE's who are now management level for these types of companies. One of them hounds me regularly to join up. Their upfront fee? $3500. Where do they get it? The tell the home owners to make their next three payments (or more or less) directly to them and not the mortgage lender.

Christine - I'm sure it's really hitting the legitimate companies and rattling their cages. I bet we can find some info from some legit companies combating the same thing.

Jeff - I think they have just been gathering evidence. I've known for at least 6 months they were investigating.

Russ - right on.

Lynda - "desperate folks do desperate things" - exactly!

Pete - you're welcome

Walter - Yours is a fair response from someone in the industry being targeted for purging. My recommended solution when people call me is for them to follow the same simple rules your company should follow when applying for a modification and to tell them if they are not persistent chances are they will not get the modification. (Also, everyone who thinks they qualify for or deserve a modification don't.) You're talking about Hope for Homeowners, HOPE NOW is something different. Hope for Homeowners was (is) a joke - but does that give scammers in your industry the right to bloodsuck from desperate people? As for the open minded attitude do you mean people should just accept "loss mitigation companies" at their word just because they want us to? There's no slander anywhere in the post or comments by the way. I'm sure you're a law abiding professional service provider and just like I have been extremely vocal against scammers in the mortgage banking industry, including one of the biggest names on the planet, I imagine you will stand up for what is right and against the very people who have brought these investigations and charges into your industry.

Lane - that "creep factor" is there for a reason. It should never be ignored!

Andrew - I think you can cover the bags and victims with that statement.

Chuck - that's the best policy in my opinion.

Chris - we did expect them so now we have them.

Regina - HOPE actually refers callers to people who are in the service industry - if those people can't help it may be that no one can. The reason people fail at getting modifications are numerous and NO "modification company" can do anything an individual cannot do. Some people simply do not qualify for a mod and others simply do not need one - they're just trying to game the system.

Kate - I'm not going to stick up for HOPE NOW but once again just because a government agency is not living up to expectations (big surprise, just wait until they control medicine and healthcare). If you're one of the legitimate companies then that;s fantastic. I have been in the mortgage business in upper management for several years and have seen very few companies I would recommend to my friends or family. Yours may be one. I am not, however, going to take the time to source out which ones are good and which ones are bad. Go make a post extolling the virtues of your company and why you're one to be trusted and I'll be more than happy to read it.

Ralph - and catches the few good ones in the cross fire as always happens.

Lenn - absolutely there are legit ones. I don't see any of us saying they are all scams but I'm sure anyone in the business is going to think this is an attack on the industry. Like one commenter said there are scams in every business. Heck, I'll go on to throw in Governors, Senators and the whole lot.

Fernando - do you charge upfront? Do I charge upfront? That IS a big issue for me. They almost all charge up front. So what's their guarantee?

Tom - I'd definitely be able to pay a couple of bills.

Larry - right.

Connor - very good points! Funny that so many agents expect loan officers to give them a kickback, at least in the Atlanta area. It's one reason we only work with a handful of agents - we don't pay!

Jeff - Kate is feeling the sting of an industry participant whose industry is under investigation. She's not reading this with the desire to agree. What I wrote is not opinion, it's news. I invite every legitimate service provider to speak up. Like I said earlier a part of the litmus test for me is if the service provider charges a huge upfront fee that will not be refunded on failure to modify. I think the other thing is some allegedly take money from people knowing they will never qualify for a modification. That's theft - period - and the people should be charged with a fitting crime.

Norma - your industry really isn't at fault here. They, and the mortgage banking industry, are culpable for providing a service but neither industry has any guilt associated with these scam artists.

J. Phillip - I am sure each area has snakes of different colors.

Darrell - yes I knew the DBF was getting into play on this and the letters you spoke of being received by family members are exactly why.

Natalie - Lenn is one of the sharpest minds on AR, no doubt.

May 18, 2009 04:41 AM
Steve Richman
Genworth Financial - Raleigh, NC

If the homeowner has private mortgage insurance, the homeonwner can contact the mortgage insurance compnany's homeowner assistance team for help.  This is a borrower benefit of the MI.

May 18, 2009 05:57 AM
Dawn Maloney
RE/MAX Trinity Northeast Ohio Real Estate Specialist - Hudson, OH
330-990-4236 Hudson & Northeastern Ohio

Lenn said,"When a consumer contacts the government entitiy for help, they'll be informed of the guidelines. When a consumer contacts a private for profit loan mod company, they'll be given a sales pitch."

The first choice is proven to be no help & a bunch of talking in circles to the average underwater homeowner.

The second choice is generally a sheep-shearing from a 'friendly' wolf.

Real help is found with someone who will point the homeowner to legitimate legal help first, to find out whether or not the person's home can be salvaged. The sad fact is that most agents cannot devote the time and energy that consumers need when they are about to go over the cliff.

There is good info here in some ways, but sadly, I think most agents will withdraw from trying to help troubled homeowners after reading it, even if they are not taking up front cash.

May 18, 2009 06:09 AM
Lee Ali
Las Americas Real Estate - Fairfield, CT


George W. Bush once said, “If it feels good, do it. If you got a problem blame somebody else.”

Check this out: http://www.nytimes. com/2009/ 05/17/magazine/ 17foreclosure- t.html?em

You won't find many REALTORS who will take the blame of "steering"; anything. Even if some agents did the steering, the whole issue of booms and busts is neither created by the REALTORS nor by the consumers nor by the end-financiers whose money went into a black hole.

Booms and busts are created by banks and it would be naive to think that banks have a way of fixing their business model which heavily depends on renting someone else's money. Note: Banks' business model takes care of inflation for themselves.

For example, if a house costs $100,000 and bank charges 6% interest, it is $6,000. If the house price is inflated to $200,000 and the bank still charges 6% interest on a new loan, it gets $12,000. Neither $100,000 was banks' money nor $200,000 is banks' money. Their money is $6,000 and $12,000. So the business model works for the banks.

Banks and Wall Street ran $27 trillion (yes with a T) through our economy in the past 8 years.;sid=a0jln3.CSS6c that is 2 times our GDP.

Wall Street came upon this unprecedented supply of money which no one knew what to do with.

Martin Wolf of Financial Times explains the latest real estate fiasco as, “It took foolish borrowers, foolish investors and clever intermediaries, who persuaded the former to borrow what they could not afford and the latter to invest in what they did not understand.”

Professor Darrell Duffie of Stanford University indicated, “The picture emerges: banks often sell loans that are designed specifically for an intermediation profit rather than a long-run investment profit.” This is summarized by Mohamed El-Erian, co-CEO and co-CIO of PIMCO, one of the largest investment management companies of the world, as, “allowable activities too often exceed the ability of the system to sustain them.”

And as late as the summer of 2007, even the largest banks did not take corrective measures to stop the inevitable train-wreck. The CEO of Citigroup, Chuck Prince, said on July 10, 2007, “When the music stops, in terms of liquidity, things will be complicated. But as long as music is playing, you’ve got to get up and dance. We are still dancing.”

I have written a 200-page book about the real estate boom and busts and how to solve it once for all.

Just like MLSs have to get out of the real estate's path, banks will have to get out of the real estate path. Other actors who have "skin in the game"; need to drive the real estate lending. Banks neither have "skin in the game"; nor they are interested in real estate as an asset class. Their business model is just not suited for real estate. It is funny that banks want the buyer to show "skin in the game" whereas banks are themselves void of the same.

Requiring 20% down is not the solution of the problem. It just removes a lot of otherwise willing buyers from the buying pool thus keeping prices down. One of these days, someone will come up with a mortgage "product" which will have 10% or even 5% down payment requirements and we will have de ja vu all over again.

Banks should just focus on their non-real estate lending businesses. They do them very well. God bless them.

However, practically speaking, we just need more players who have ";skin in the game"; and who know how to appraise and appreciate real estate as an asset class.

PS: Oops, I wrote too much, AGAIN. I will have to make a blog post out of it. :)

May 18, 2009 06:13 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru


Wow what's left to say? Thanks for getting this out and I'm happy to see it generate the interest it has. Mods were always the next subprime. We saw it in the industry by the very players that gravitated to it.

Gerry Suarez, Jr.

Your FHA Loan Pro!

May 18, 2009 06:21 AM
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTORĀ® - Oklahoma Investment Properties

Human nature has not been outlawed or regulated. We live in a free country that gives you the freedom to scam. We also have the freeedom to take your freedom away. This is worth a reblog. 

May 18, 2009 07:14 AM
Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

You have gotten a lot of responses to this post and rightly so.  Greed causes many unfortunate things to happen and most often to those who are in need of the most help!

May 18, 2009 07:20 AM
Matt Stigliano
Kimberly Howell Properties (210) 646-HOME - San Antonio, TX

In reference to Jeff, Lenn, and Kate's comments above:

I think there is a danger in not posting these sorts of things.  Now of course, I am not saying we should run around fear mongering and placed inaccurate information all over the web, I am saying that the need for the consumer to see the whole picture exists.  I've commented before that when things started to go south in the industry I bet there were plenty of people out there still saying everything was fine.  That sort of action only builds distrust.  By showing the public the complete picture, we are being more and more transparent (yes, I know, it's the new buzzword).  The more we give, the more trust we will gain.  I refuse to go pussyfooting around issues because they have some "bad" connotations with them.  I'm here to help educate and guide the public and my clients and I think taking the "warts and all" approach is the only way to truly be a trusted source.

May 18, 2009 09:11 AM
Randi Turley
Next Door - Phoenix, AZ

It's about time the govt. stopped focusing on steroids in baseball, and starting looking at some potentially very harmful acts that are effecting the general consumer.  The last thing this industry needs is more negative press. 

May 18, 2009 10:30 AM
Coleen DeGroff
Coldwell Banker M.M. Parrish Realtors - Gainesville, FL
Haile Plantation Real Estate - Gainesville FL


Thanks for your post. It's heartening to hear the govt is stepping up its efforts against loan-mod weasels.


Seems to me our role as realtors has become even more critical during these crazy financial times. It is imperative we keep up with what is going on in the business so that we can counsel our clients appropriately.



May 18, 2009 10:31 PM
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

I think my heard is going to explode!  Maybe I missed it, but I was looking for some legitimate place for the consumer to go that is good and has a proven track record.  Lots of warnings about bad people and companies......which is useful information.  However, I need answers and I will continue to look.

May 18, 2009 11:02 PM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Great blog Ken!

I have often wondered HOW LONG it was going to take until the Government FOUND A WAY to regulate these guys!!!!!!!   It has taken toooo long in my opinion!!!

Most people honestly dont know the difference between who the FTC regulates, and who the FDIC insures!! :)

Consumers are constantly asking me who I would refer them too in a difficult situation, and I am ALWAYS STUCK!!!! 

Couldnt agree more with you in this one, and cannot wait to see some of them go down!....although, it is just ONE MORE negative we IN OUR INDUSTRY wil have to fight off!


May 19, 2009 07:35 AM
Esko Kiuru
Bethesda, MD


High time the FTC gets involved. There is plenty of work for them just to keep some kind of a lid on this scourge.

May 19, 2009 10:20 AM
John Sweeps McNulty
Gallagher & Lindsey Realtors - Alameda, CA

Ken,  In regard to Lane's “creep factor” comment on your Blog, I have had the same feeling after being repeatedly cold called at my real estate office. Yes they say that they follow the law... and will I be willing to take a cut?

And I am a realtor with a personal loan trying my way to a DIY mortgage modification.


Read my quest:


I am following the wishes of people like me who are waiting for some help. Two are employing mod-squad members and two are like me, DIY moders in touch with their lenders directly.


I sincerely appreciate your message. I am ashamed of so many fraudulent mod-squad a-holes hurting thousands of people. People not much different than me. People get desperate and are food for the vultures.


BTW, it only takes a couple of clicks from this page within ActiveRain to find these people and their pitches.



May 28, 2009 01:53 PM