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Firms Charge Thousands To Modify Mortgages

By Renae Merle
Washington Post Staff Writer
Friday, December 26, 2008

A growing industry has emerged to take advantage of the unprecedented wave of foreclosures, charging distressed homeowners for help negotiating better loan terms -- a service provided for free or for a nominal fee by many nonprofits.

Such companies charge $500 to $2,500 or more and are drawing the ire of consumer advocates, regulators and lenders, who say many are just the latest version of foreclosure rescue scams and can make it more difficult for homeowners to get help.

"You don't need to go out and hire someone to help you," said Michael Gross, managing director of mortgage servicing for Bank of America. "It is very, at times, frustrating to find a homeowner who has paid a for-profit company $3,000 to $5,000 in an upfront fee, when they could have gotten the same or better assistance free."

Loan modification firms say they are taking up the slack left by unresponsive lenders and overwhelmed nonprofit groups. "Nonprofits are not as efficient as the regular market," said Moose M. Scheib, the head of Michigan-based LoanMod.com, a loan modification firm that charges homeowners $1,500 to help renegotiate their mortgages. "I think the difference is probably more attention you get from us."

There do not appear to be federal laws that prohibit charging for this service, several law-enforcement officials and law professors said. Instead the practice is governed by a hodgepodge of state and local laws. Virginia does not appear to restrict its practice, according to the state's consumer services department. Officials with the District's Department of Insurance, Securities and Banking said these companies would fall under statutes covering credit counseling services, and therefore must be registered.

Maryland has received several complaints and issued an alert in September warning that under its existing laws, loan modification firms cannot charge an upfront fee.

Maryland's Department of Labor, Licensing and Regulation has helped recover at least $10,000 for homeowners who say they were misled, according to the agency. But the state says the problem is bigger than the fees.

"Once a borrower pays an unscrupulous loss-mitigation consultant and time is wasted, the damage has been done," said Sarah Bloom Raskin, Maryland's commissioner of financial regulation. "While we may be able to recover fees, we can never recover the lost time -- time that the borrower could have used to work out a bona fide loan modification."

"We are extremely concerned about the huge proliferation of for-profit companies making a buck on these people," said Laurie Maggiano, senior policy adviser at HUD's Office of Housing. The department has certified 2,300 nonprofit housing counseling agencies across the country, which are required have at least one year of experience administering a housing counseling program, Maggiano said.

Legal Services of Northern Virginia, a nonprofit group, investigated a case involving U.S. Homeowners Assistance of Irvine, Calif., after a client paid the firm $2,500 for help modifying the loan for her Alexandria home. After receiving the money, the company did not return her calls, said Kristi Cahoon, a lawyer with the nonprofit group.

By the time the homeowner, a 75-year-old retired nurse, realized no help was forthcoming, she had fallen behind in her payments and was facing foreclosure, Cahoon said.

U.S. Homeowners Assistance said in an e-mailed statement that the borrower's money could be returned if she requested a refund and a review of her file was conducted.

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