How to Avoid a Mortgage Modification Mix-up

If your mortgage is underwater (worth more than the value of your home) or if you are having trouble making payments then this site is for you. Our goal is to arm you with the information needed to avoid scam artists and to help you successfully modify your mortgage with your current lender.

If you are a homeowner that could afford a reasonable house payment, then loan modification if probably for you.

Mortgage Modification - 1 - House in HandsGoals

Here are the reasons that the typical homeowner considers a mortgage modification:

  • Stop the foreclosure process (or prevent it from starting)
  • Keep your credit rating from falling
  • Have piece of mind that you can afford your home
  • Provide a solution where the monthly payment is no longer a struggle

General Mortgage Modification Tips

Follow these tips to avoid scams and to achieve a loan modification agreement.

  1. Contact Your Lender First: Many lenders want to avoid foreclosure proceedings and will work with you to keep your payments above water.
  2. Get a Recommendation from HUD: This government agency maintains a database of approved mortgage counselors. Call 1-888-995-4673.
  3. Pay Your Lender Directly: Avoid third parties that want to make payments for you. If they charge a fee, pay the consultant separately so that you can keep track of who is getting what amount.
  4. Check the Web for Reviews: Major consultants are reviewed online at credible sites such as the Better Business Bureau.
  5. Be Careful When Signing Documents: If you have any concerns with a contract or terms sheet have it examined by a lawyer. Do not sign incomplete documents where there are items that need to be filled in later.
  6. Do Not Sign Over Deeds or Titles Unless Advised by a Lawyer or Approved Consultant: Many scams are geared toward stealing your home right from under you. These scams involve having you sign over the deed or title to your home! If you are asked to do something this radical, DO NOT do it without getting a lawyer or credit counselor that you trust, and that is approved by HUD review the documents and what you are signing.
  7. Get It In Writing: There are no such thing as a verbal promise. If it is not in writing, the obligation does not exist.
  8. Report Con Artists: If you believe someone is conning you, report it to the FCC (Federal Trade Commission).
  9. Do Not Pay Fees in Advance: New HUD regulations forbid mortgage counselors from charging advance fees until you get a written document that describes how your mortgage will change and a written loan modification offer. If you do not get both documents, do not pay a fee. Also, if the modification offer is temporary (called a trial modification), then the provider cannot charge a fee if the consultant does not let you know that it is an interim agreement that may not become permanent.
  10. Ask For Answers to the Following Questions:
    1. Fees
    2. That assistance being provided is or has not been government approved
    3. That your lender may not agree with what is being proposed by the consultant
    4. If you can end the business relationship with the mortgage relief consultant company whenever you want. Also that you can not accept/reject any offer that is presented to you.
    5. They must be clear that if you stop making payments you will lose your home (if this is the case in the agreement)
  11. Nothing is Guaranteed: HUD prohibits mortgage relief companies from promising or guaranteeing an outcome. No one knows for sure if your lender will agree to a proposed modification request. Consultants cannot make false promises when it comes to the time things will take, relationship to the government, your obligations under any proposal or the terms of any modified mortgage. They also need to be clear when it comes to fee refunds and how much you owe. All costs need to be clearly disclosed.
  12. Ask About Legal Representation: Determine up front if you have to provide a lawyer and if one is needed to modify the mortgage. Ask who pays if a lawyer needs to be called in.  If you have an estate plan, it would be a good time to understand how the purchase of a home impacts that plan.  Even younger families need a will and estate plan. If you don’t at least have a will the courts will dictate how assets are distributed instead of an agreement between spouses.
Mortage Modification - 2 - Reaching for the Sky

The Freedom Mortgage Feeling Can Be Yours

Getting Freedom from Your Mortgage

Many government programs can help you achieve freedom from your high mortgage payments. This includes new legislation and regulations designed to encourage banks to pursue mortgage modification instead of foreclosure. Here are some examples of federal home foreclosure agencies, resources and mortgage modification programs.

Mortgage Modification 3 - Signing Documents

Be Careful What You Sign and Have Contracts Reviewed by a Lawyer First!

Federal Mortgage Foreclosure Avoidance Programs

There are several government programs that were started help a borrower achieve a successful mortgage modification. The best place to start is with your lender who will have direct access to many of the government programs lists below. If this approach is not successful, then the next best approach is to call the phone number listed in point 1 below. This government agency can provide a reputable counselor that can help you navigate the many programs available.

There are many opportunities available for a borrower in distress. This is particularly true if you are working and that the payments exceed 30% of your income.

  1. Hope Now Alliance: This alliance was formed in 2007 as a private-public partnership between all parties in the mortgage market. This group has a hotline for homeowners that offers FREE counseling. The organization can be called at 888-995-hope.
  2. HERA (Housing and Economic Recovery Act of 2008): This act is designed to help troubled borrowers. This act created the FHFA, which is the Federal Housing Finance Agency. The agency developed the H4H program (help 4 homeowners). To get a HERA loan you need to work directly with your lender.There are several eligibility requirements to get one of these mortgages including:
    1. Living in a primary residence (1 to 4 units max in residence)
    2. This is the only real estate you own
    3. The mortgage was signed (originated) before 1/1/2008.
    4. You have made 6 or more mortgage payments.
    5. You cannot afford the mortgage payments (payments are greater than 31% of your income).
    6. You cannot make payments unless you get assistance.
    7. FDIC Loan Modification Program: This program uses FHA guidelines and is also available directly from your lender. It is for borrowers who have mortgage payments that are approximately 31% to 38% of their gross income. The goal is to reduce the payment by at least 10%.
    8. Emergency Economic Stabilization Act: In this 2008 program the U.S. Treasury allocated money to purchase troubled loans from lenders. This program only indirectly helps homeowners by removing bad debt from the balance sheets of banks.
    9. Freddie Mac and Fannie Mae Mortgage Modification Program: The goal of this program is to streamline the modification process. This is accessed through your lender and results in changes such as lower interest rates.The mortgage borrower must be:
      1. 90 days in delinquency
      2. Signed for the mortgage before 1/1/2008
      3. Be living in the property
      4. Property must be only one unit
      5. Loan must represent at least 90% of the home value
      6. No bankruptcy filings

New programs are continually in development, and old programs are being improved, so check with your lender to see if you qualify for programs that used to be out of reach.

Mortgage Modification 4 - Saving Money

Many Programs Are Available if Loan Payments Exceed 30% of Your Income

Con Artists and Modification Scams to Avoid

There is no limit to the number of companies offering to reduce your mortgage payments or to help you avoid foreclosure. Fortunately, there is one easy way to check the credentials of any mortgage consultant, which is to work with anyone approved by HUD (U.S. Department of Housing and Urban Development).

They have a free service that can be reached by calling 1-888-995-HOPE (4673) or you can visit the HUD website.

Mortgage Modification 5 - Contracts

Homeowners Beware When Signing Mortgage Agreements

Common Mortgage Scams

  1. The Bankruptcy Scam: Corrupt consultants often suggest that bankruptcy is the best way to prevent a foreclosure proceeding. The reality is that yes, bankruptcy will temporarily stop any foreclosure. Once a court gets involved, you will either have to make payments or the bank will be allowed to proceed with the foreclosure. All you are doing with this option is delaying the inevitable. It will also result in a reduction in credit score, making it difficult if you want to move to another property.
  2. Rent-to-buy or Leaseback Scams: In this scam the consultant will try and convince you to sign over the title to your home to the consultant. In return, they offer to rent you the home, and when you are on a better financial footing, they will let you buy it back. The truth is that many of these consultants will present you with an agreement that makes it almost impossible to comply with the terms of the contract. Once you miss even one of the terms, the contract is voided, and you will no longer be able to buy back your home. NEVER sign anything that has to do with real estate without having a lawyer review the document.
  3. Programs That Mimic Those Offered by the Government: In this scam, the con artist wants you to believe that they are offering a government program when, in fact, they are not. They will use language that sounds like those programs. For example, they may offer you a TARP mortgage instead of the government approved HARP mortgage.
  4. Remove Your Debt Scam: Beware of anyone that starts telling you that the law is on the side of debtors and that they know how to use the law to eliminate your debts. Yes, the law provides some protection, but there are no secrets in the law. Beware of any promises that are too good to be true or that use lines like “the banks do not want people to know that…”
  5. The Middleman Scam: In this scam a mortgage consultant will tell you to pay them directly, and they will handle the mortgage company. Many of these scammers will say that they have avoided foreclosure, only to keep your money and never pass it on to the lender.

Mortgage Modification 6 - Save Money

Avoid False Promises

There are many ways con artists make promises to desperate homeowners. These include:

  • “Pay us a Fee and Your Home Will Be Saved.”
  • “We will save your home, guaranteed.”
  • “Sign Over Your Home to Us and You can Live in it Forever.”
  • “Never Write Another Mortgage Check Again.”
  • “Never Take Phone Calls From Your Bank or Mortgage Lender.”
  • “Do Not Worry About The Blank Spaces on This Contract, Just Sign It.”
  • “Keep Your Home, Even Through Bankruptcy.”
  • “Sign Up For Our Services Or You Will Lose You Home This Month.”