Jonas Jacobson

The second kind of scam that homeowners can experience after purchasing a loan involves an offer to modify the loan, made either by the loan's servicer, who probably has no intention of modifying the loan, or by a third party "modification assistance" company, which will offer to "help" with a modification. More details, after the jump.

The first kind of scam involves the mortgage servicer itself. Generally speaking, the servicer is the party to whom a consumer pays his or her mortgage payment, plus escrow (insurance and taxes). The servicer, after determining the consumer is in arrears, will sometimes try and "modify" the mortgage, by offering the consumer an opportunity to pay a lower rate. Do not be deceived. Foreclosure proceedings are going to commence, and the mortgagor, depending upon the terms of the modification, may simply be trying to collect whatever money it can before it takes your house.  If you enter into a mortgage modification agreement, be sure, before abandoning whatever other plans you have for you money, or your house, to have in place a foreclosure forbearance letter signed by the bank, which will entitle you to your mandated 90 days for curing a mortgage arearage.

The problem with these modification programs, is that they give consumers the false impression that their home will not be foreclosed upon. If you have limited time resources, consider pursuing another option, as the servicer will likely continue foreclosure proceedings throughout the modification period.

There is also significant administrative hassle associated with dealing with the "customer service" department of any large bank. Expect massive hold times, long confusing delays, and dealing, each time you call the bank, with a different person who will need to hear you again repeat your story. 

The second, and the more invidious type of "modification scam" is the third party that offers "loan modification services." First off, if these individuals seek to charge an advance fee - they are breaking the law if they charge an advance fee. Secondly, consider for a moment why your servicer would be moved to negotiate with a third party, instead of with you directly. In order to negotiate, the third party will need a power of attorney to deal with the Servicer, who may subsequently stop sending you information about your home's foreclosure. 

Do you really want to be disconnected from that information?

Moreover, if you give the power of attorney, why would these companies be interested in a modification? One can only assume, if they are for profit, that it is because they will be taking a piece of the modification. One can further assume that the piece they might take likely amounts to an additional reduction in interest rate, to the advantage of the homeowner - and bear in mind, the Servicer is not even likely to modify anything in the first place. Finally, ask yourself, why would the bank be more likely to grant a modification to the third party than to the consumer?