Scamtime

I suppose that is an entire class of scam artists that are always around, waiting for a new scam to start up and then they get in that business. For a while it was fixing your credit, but the Federal Trade Commission shut most of those guys down. Then it was the mortgage business where tens of thousands of "loan reps" scammed unwary borrowers with subprime loans.

Today with so many credit problems, the credit repair folks have re-appeared. The FTC has guidelines and warnings at their website. You ought to know about this before you hire one of these companies as you are likely to be wasting money. Of course most of the legal things you can do to fix your credit do not require assistance, you can do them yourself.  In fact, the folks at credit.com have lots of resources to help you. 

The newest scam promises loan modification into terms that are better for the borrower. As a mortgage broker I receive an e-mail a day telling me I can make "six-figure income" helping people modify their loans. I will admit that I have not followed up on this and I have not yet helped anyone modify his loan, so I don't have personal, first-hand information that these are scams.

What I do know is that the mortgage industry is finally getting serious about trying to help rescue worthy homeowners and get them into affordable loans. The BofA/Countrywide push started this week. And, as previously reported, Chase/WaMu and Citicorp are starting their programs soon.  However difficult it may have been to work with these lenders in the past, I think that it is going to get a lot easier.

We will have to see how this sorts out. In the meantime, if you are hoping for a modification I have a warning or two. As a loan originator, I get solicitations from "loan modification companies" who want us to refer needy borrowers to them. Most of these people are sharks that make claims that are probably not true about their incredibly high success rate. They charge upfront fees that may be egregious, like $2,995 in the case of one company.

I would be exceedingly wary of paying any upfront fee to someone for the promise of illusory benefit some time in the future. Also note that in some states what these folks do requires a license, perhaps as a Credit Counselor. Check your state government's website to see what applies in your state.

Finally, remember that none of these companies do things that you can’t do yourself. I have to wonder why a lender would do something for a loan modification company that they wouldn't do for the borrower directly. 

To that point, however, we hear stories that people are just not contacting their lenders.  The FDIC, which has been working with borrowers of defunct IndyMac, report that about half of the borrowers just do not respond to offers of help, even if they are in foreclosure. You would think that someone who was about to lose his home would at least open his mail!

Be careful out there!

Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.