Up Front Fees and Scams

Media and Journalists Offer Little Help or Information for Troubled Homeowners

"If you don't know what you are talking about then you shouldn't talk." This is a lesson that most people learn at some point in life. Of course everyone knows a jackass that has yet to learn this simple little life's lesson. Apparently this is a lesson many of the journalists currently writing "Loan Modification" advice articles have never learned.

Granted, the loan modification industry has provided ample fodder for the general media. Early on, the lack of oversight and regulation of the industry created a perfect petri dish for growing con artists. All of a sudden everyone was an expert and thousands were getting scammed. This early preponderance of scams in the field made for easily written and sold "advice" articles.

The clearest examples of this can be found in literally hundreds of loan modification articles written over the course of the last year. These articles all issue the same dire warnings to troubled homeowners. They all provide the same talking points and invariably the message is exactly the same:

DO IT YOURSELF! DON'T PAY UPFRONT FEES! or THERE ARE FREE RESOURCES OUT THERE LIKE... "HOPE NOW"!

A year ago this may have been sound advice. The problem now is that loan modification rules have changed but the advice has stayed the same. Over the course of the last six months the states have stepped in and passed legislation aimed at protecting homeowners and at regulating the industry. No longer can anyone with a website and business card call themselves a loan modification consultant. This legislation has pulled the rug out from under thousands of self proclaimed loan modification experts and inserted strict guidelines as to who can operate in the industry. Unfortunately, the media has not recognized this fact and continues to beat the same drum and tout the same advice.

The current problem with these types of articles is that the authors generally possess no practical experience or expertise in the field upon which they are commenting. In other words the majority of these journalists have absolutely no idea of what they are talking about.

The issue here is that this sort of advice leaves the homeowners with little choice and few options. This message frightens the homeowners away from seeking legitimate professional help. The reality is that doing a loan modification, without professional help, has thus far proven to be a very low probability endeavor. Furthermore, the homeowner who attempts modification on his own is likely to spend many, many months running into brick wall after brick wall or getting the "run around." Meanwhile missed mortgage payments continue to stack up, placing the homeowner further and further behind. The ten months (not at all unusual) the homeowner burns attempting to negotiate with the bank on his own means ten missed mortgage payments. Considering a $1200 mortgage payment, this means the homeowner has accumulated in excess of $12,000 in late payments when coupled with associated fees. This is new debt which will likely be tacked onto the balance of the loan. It doesn't take long for it to becomes apparent that the "free" route of performing a loan modification on your own is really not very "free."

The overwhelming majority of homeowners indicate experiencing frustration, delays and dissatisfaction when attempting the process themselves . Most of the articles from the major news sources, concerning government modification plans, report very limited success. A CNN article dated 12-10-2009 indicates that only 4% of borrowers are receiving long term help under the Obama plan.

The ratio of comments indicating frustration and failure outnumber those indicating simplicity and success by at least 100 to 1. The only people to be found advocating self performed loan modifications and commenting on the ease of the process, are likely people who have never in their life attempted to negotiate a loan modification.

The first thing the reader of these articles should do is consider the source. What makes this article's author an expert on Loan Modification? What experience are they drawing upon in order to provide you with this point of view? In short, what makes this author an authority on the subject?

A few months ago a quick read of an article disparaging "upfront" fees and advocating self representation provided some insight. A little bit of research on the article's author also provided some interesting results. Was this person a mortgage professional? -NOPE. Was she a business professional? NOPE. Was she a legal scholar? -NO. Was she a loan modification expert? -NO. Was she banking professional? -NOPE. Was she a real estate professional? -NO. So what were the author's qualifications? As it turns out the authors qualifications are that she is.... a journalist. A google search revealed several other articles written by this very same author.... all of them about the proper application of different types of make-up. That's right...MAKE-UP. So I guess the question is... "Should this person be giving advice concerning Loan Modification?" and "should you be taking this person's advice?" The answer is pretty clear.

A large part of the current problem is that homeowners, following poor advice from journalists and the media, are attempting to deal with the banks on their own. Unfortunately, this approach leaves the homeowner to his own devices. As it turns out, it's kind of like sending homeowners to a gunfight with a knife. The lender holds all the cards and negotiates with the LENDER'S best interests in mind. The lender negotiates to provide the homeowner with the LEAST AMOUNT of modification relief acceptable to the homeowner. The lender negotiator is a LOSS MITIGATION expert. This means he is attempting to maintain as much of the bank's money/profit as he can. The lender negotiator's primary goal is NOT "helping the homeowner" get the best deal, it is in fact, limiting the lender's losses.

Upfront fees were (and in some cases still are) a significant component of the loan modification scam. However, the "upfront" fee itself does not automatically mean scam. Many, if not most, professionals or professional services require some sort of deposit, binder, retainer, initial payment or other "upfront" fee prior to initiation of the service or work. Self proclaimed loan modification experts in the media, will make the blanket statement: "If they ask for an upfront fee-it's a scam!" I would submit that this is a gross and irresponsible oversimplification. Perhaps better advice might be to thoroughly check out the loan modification company prior to paying any upfront fees. Advice advocating google searches, on the company being considered, with "scam" or "complaints" in the content lines might be appropriate. Checking on the company with the Better Business Bureau would be sound advice. In other words-performing a bit of due diligence prior to engaging a company for representation might prove to be more realistic and valuable pieces of advice.

The bottom line is that the majority of people need third party representation when it comes to negotiation with their lenders. Most states have enacted legislation aimed at regulating the industry and protecting their residents. Con artists are con artists and should be called out as such but the media and journalists need to realize that there are many, very legitimate, companies operating in the loan modification industry. These are companies that are truly dedicated to providing homeowners with the honest and professional help they require. These are organizations that follow the rules and regulations as laid out by the state and federal governments. These companies, and the people who work for them, have an honest and ethical business model coupled with a genuine desire to help troubled homeowners.