Realty Check

Loan Modification Companies: Saviors Or Scams?


I got an interesting email today asking about “loan modification companies.”

These have sprung up like crabgrass in the midst of the foreclosure crisis, many of them run by former subprime mortgage brokers or real estate brokers who don’t have much work these days.

One Google search, and they pop up instantly with names like “” and “”

The companies claim they will, for a fee (which seems to be around $3000), get you through the red tape of lender/servicer modification programs and get you to a rate or payment that you can afford. Some are quite reputable, while others are total scams.

The California DRE warns consumers to be careful of company’s asking for upfront fees, which are only allowed for certain licensed companies. It lists 145 companies that have “submitted advance fee agreements for loan modification and/or similar services to the Department of Real Estate for review, and have received “no objection” letters regarding their use.” That number has jumped from less than 25 just sixty days ago, an indication of just how many folks are looking to profit from the modification game. There is “no objection” if the companies are run by a licensed real estate broker or a licensed attorney.

“I wouldn’t say they are all legitimate,” says Tom Pool of the DRE. The California DRE alone is currently investigating 250 open cases, looking into loan mod scams. It’s already shut down several.

Still, as I said, many of these companies are legitimate, but you might ask, if banks are supposedly getting so aggressive in trying to help troubled borrowers, and Fannie and Freddie are ramping up their efforts as well, not to mention all the non-profits out there trying to help, why do you need to pay these companies for a service that should be provided by your lender for free?

“Given the flood of people looking to modify their loans, both non-profit counseling agencies and lenders/servers are overwhelmed,” says Guy Cecala of Inside Mortgage Finance. “People are desperate for help and are willing to pay $1,500 to $2,000 if it means they can lower their payments and avoid foreclosure.”

Pool says some of these companies do have “back door” relationships with lenders and can speed the process, but he also says there are plenty of free services out there as well. All agree the sheer number of people in trouble is taxing the lenders and the non-profits and giving rise to these new companies.

Mark Hanson, a mortgage expert with the Field Check Group warns, “It is a disaster of space riddled with fraud…most are very shady being run by flunky mortgage brokers promising things like short refi’s and principal reductions they can never get.”

The DRE suggests that if you are considering a loan modification company, first make sure it’s licensed, second, ask about its success rates and finally be sure you read the contract closely. It should be explicit in the services provided and the full costs. Make sure you’re getting what you pay for.

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If you've had any experience, good or bad, with a loan modification company, please write in to the blog and let us know about it.