Equity skimming, illegal property flipping, foreclosure rescue scams … and now, say hello to the newcomer on the fraud block, the home-loan modification scam.
There’s no evidence that the same people are involved in the new scam, said Deborah Bortner, director of consumer services for the state Department of Financial Institutions.
“But the intent is about the same,” she said. “They are looking to take people’s money.”
Bortner’s agency was established in 1993 to regulate and examine a variety of state-chartered financial services. The agency also provides education and outreach to protect consumers from financial fraud. Given the peaks and valleys of real estate and mortgage banking, the agency has had its hands full. It recently pushed for passage of two bills that put teeth into how loans are serviced and closed.
“We proposed the loan servicer bill because we received so many complaints from Washington homeowners who lost their dreams — their homes — to questionable third-party loan servicing practices,” Bortner said. “Throughout the foreclosure crisis, homeowners desperately hoping to avoid losing their homes have fallen victim to companies offering to help — for a substantial fee. In many cases, the homeowner pays several thousand dollars, receives no loan modification and loses their home to foreclosure anyway.”
All servicers now must explain all fees, credit all payments within one business day of receipt, make reasonable attempts to comply with requests for information from the borrower and promptly correct errors and refund invalid fees.
A typical loan modification is a permanent change in one or more of the terms of a borrower’s loan, allows the loan to be reinstated and results in a payment the borrower can afford. This can mean a lower interest rate or an adjustment in loan term or monthly payment. While there are legitimate loan modification companies, there are many more who charge fees for services never rendered.
For loan modification services, the new law requires:
Upfront fees may not exceed $750.
Total fees charged be reasonable and customary in the industry.
The service provider must not require the borrower to waive his or her legal rights, cease communication with the lender or pay any charges not enumerated in any agreement.
Loan originator and mortgage broker licenses may not be issued to persons who have provided unlicensed loan modification services in the last five years.
“It seems there is a large group of these companies in Irvine, California,” Bortner said. “Nobody knows why, but the foreclosure problems in southern California have been well publicized and these types of services are sought after.”
The new modification bill requires licensure of loan servicers and creates prohibited practices. It also compels all servicers to comply with many of the laws applicable to loan originators and demands them to maintain a surety bond. Regulators encouraged legislators to draft a statute because policy guidelines were being abused.
The other law recently passed addresses escrow shortcomings and requires an escrow agent’s bond to cover the owner, a director or an officer in addition to all employees.
“The escrow bill was proposed because there have been instances of escrow companies whose owners absconded with consumers’ funds and there was no bonding to cover the loss,” Bortner explained.
Investigators and regulators have become used to all kinds of deceptive pitches. In every case, the program offers a desperate consumer hope of escaping a deep, dark hole. Three years ago, the big play was “foreclosure rescue,” in which scammers peruse county records to find properties that face foreclosure for nonpayment of mortgages or taxes. And, like loan modification programs, these companies would charge questionable upfront fees and then not do any work.
Consumers who think they are being scammed should not sign anything until they get the documents looked at by a neutral party. They should contact the Consumer Protection Division of the Attorney General’s Office to get information about who would be an appropriate neutral party to review the documents.
The Department of Financial Institutions also has a Web site, www.dfi.wa.gov; under the “Consumers” section, click on “File a Complaint” or call 360-902-8811 or 877-746-4334. Washington residents seeking assistance can also go to the attorney general’s Web site, www.atg.wa.gov and click on the “Safeguarding Consumers” link.
Tom Kelly can be reached at www.tomkelly.com.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
