Bankruptcy

Modification Scams

By Katie Porter

While the loan origination fraud is largely shut down, the foreclosure crisis has spawned a whole new consumer fraud in the form of foreclosure rescue and loan modification scams. These companies offer to help consumers get a loan modification or to fend off a foreclosure in return for high, upfront fees. A great insider view of how these companies profit on the backs of desperate consumers is available in the receiver?s report in U.S. Foreclosure Relief, which was shut down in response to enforcement action by the Federal Trade Commission and the Missouri and California State Attorneys General. The receiver describes the business as a ?high-pressure, cash-up-front telephone sales business targeting distressed homeowners? and gives details on just how these companies rake in incredible profits while stringing along homeowners. In the case of U.S. Foreclosure Relief, the company advertised a ?90% success rate? when in fact only 11% of its clients got completed modifications (no details on whether the terms of such modifications offered any meaningful relief or not). Sales agents competed to win a Rolex watch, were told to ?stop being so nice? and instead to hammer home to consumers how much worse their problems would get if they didn?t hire a modification consultant, and got paid a bonus if the consumer paid via direct deposit. How profitable was this model? Consumers paid $2950 for ?assistance,? and U.S. Foreclosure had gross revenue of $5.9 million, with operating expenses of $1.7 million, producing $4.5 million in profit. Nice margin, huh?

Thinking of starting up such a business yourself but, of course, being honest and legitimate? Think again. The receiver concluded that if the business were run lawfully, profitability would be ?severely challenged.? In fact, I recently asked a panel of experts on foreclosure rescue scams if they thought ANYONE, even one of them, could legitimately advertise that they provided loan modification assistance. Given the long odds in getting a loan modification, even with HAMP finally somewhat operational, perhaps the best one can offer is to take on the frustrating work of trying to get a modification. But without some chance of success, perhaps most modification assistance is a mirage.

Full post as published by Credit Slips on November 12, 2009 (boomark / email).