This is an interesting article which is an editorial from NY times. All credit for this article goes to NY Times Editorial
Return of the Predators
The demise of the subprime mortgage industry has been hard on predatory brokers, too. They feasted for years on bad loans until reality crashed down and the money ran out, and there they were: sharks without a frenzy.
Now they are circling again. Predators of every sort have regrouped and returned to their old ways, this time as loan-modification companies, inserting themselves between hard-strapped homeowners and banks, offering to work deals — for cash up front.
It’s a high-pressure, high-volume business, advertising in the usual low-rent ways: talk-radio ads, Web come-ons, fliers on car windshields. The ads are full of glossy promises, like this one for a Long Island outfit: “Reduce your mortgage rate to as low as 4%. No refinancing — no closing costs. Reduce your monthly payment. Foreclosures, late pays/bad credit okay.”
It’ll cost you — in this case, 1 percent of your outstanding loan, half of it in advance.
There’s often nothing illegal about this booming and largely unregulated business. Some shops are true scams, taking the money and running. But others are just immoral, profiting on fear and false hopes with expensive services that nonprofit organizations and government agencies offer for nothing.
Troubled homeowners know all about the relentlessness of the loan-rescue racket: it fills their mailboxes and sends salespeople to lurk on their doorsteps. Foreclosure filings are public records, and loan modifiers routinely swarm courthouses to find leads. Loan counselors at the Long Island Housing Partnership, a respected nonprofit in Hauppauge, N.Y., tell of scammers crashing its housing workshops, posing as troubled borrowers, then working the crowd with sales pitches.
And they do work hard. A call to one law firm’s toll-free number plugged on WABC radio quickly gets a call back with a hard sell. “We have a 100 percent success rate” in renegotiating loans, an operator sweetly vows, reluctant to say more until you tell her what your mortgage payment is and how far behind you are.
The painful truth is that nobody has a 100 percent success rate, and not every loan is fixable. Banks have recently made public commitments to putting more effort into working loans out. But homeowners need to realize that the best way to do that is directly with the lender or through a reputable nonprofit counselor.
The for-profit loan modifier’s cruelly deceptive sales pitch is that you get what you pay for. Nonprofit organizations, which work for no fee, say they can strike better deals, because they have longstanding relationships with lenders that storefront firms do not have.
But that doesn’t mean that well-meaning advocates are aggressive and effective in finding people who need help. The government, banks and nonprofit organizations need to be more creative and assertive to outmaneuver the predators — to send the competing message that hope doesn’t require thousands of dollars in cash up front, although it does mean facing up to hard truths about one’s finances and future.
Nonprofits frequently complain about how hard it is to get at-risk homeowners to ask for help. It’s true that people deep in debt are often embarrassed and wrapped in blankets of denial. They don’t open mail or reliably make appointments. But the good actors in this bad drama need to get better at working around that problem, before more good money is thrown after bad.