Bogus bailout bucks: loan modification fraud on the rise

January 9, 12:47 PMSF Financial Fraud ExaminerPaul Springer

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Earlier this year the federal government and various lenders began introducing, or at least proposing, various programs to help keep cash-crunched homeowners from losing their homes.  Some of the loan modification programs are complicated, featuring stepped up rates down the line and huge balloon payments for mortgages that were securitized.

But in the short run, people looking into loan modification should watch out for at least a couple of types of fraud.

The first is just a twist on an old credit card fraud.  A television commercial or website trumpets payment reduction help in huge print or blaring voice over, but there's a lot of small print about credit card payments.  As always, read the fine print and make sure the company has not gotten in trouble for making unauthorized charges on credit cards.  Otherwise, you may pay for bad information over and over and over . . . . 

The second, which could go hand in hand with the first, involves advising borrowers to just stop making mortgage payments and wait for nebulous help. These crooks are twisting around a requirement of many loan modification programs, namely that applicants must be three months behind in their payments. So a growing industry of fly-by-nighters is advising borrowers to do something that could get them in a lot of trouble, and destroy their credit in the process.  

The first thing loan mod applicants have to due is swear that they did not go into arrears just in order to profit from a loan modification program.  Who's going to know why you stopped paying in the first place?  Maybe no one.  On the other hand, a big part of the new frontier in loan processing is to actually take a look at your financial statements for the last few months, instead of rubber stamping an approval.  So the roll-over-and-play-dead approach might actually bar you from loan mod opportunities in the future.

When it comes to loan modification from an internet site or advertisement, borrower beware.

If you want to reduce your loan payment legally, the first thing you should do is call your lender.  They may offer workout options unrelated to all the bailout stuff getting blown around in the press.

Photo courtesy of the U.S. government.