Firms Are Charging Heavy Fees to Assist Foreclosure Victims to Modify Loans

January 6th, 2009 | Tags: Foreclosure Victims

Although firms are charging heaving fees to assist foreclosure victims to modify loans, the non-profit groups are offering their services for free. The unparalleled increase in number of foreclosures has led to the emergence of an industry that is growing with each passing day. Firms are prospering charging heavy fees for negotiating satisfactory loan terms. Non-profit groups are however offering free services or taking a nominal amount.

Some of the firms are asking for anything from $500 to $2,500 or even more. This has invited the anger of consumer advocates, lenders as well as regulators who contend that these are just a watered down version of rescue scams. How much the house owners will actually benefit remains a matter of doubt.

Michael Gross who is the managing director (mortgage servicing) of Bank of America said, “You don’t need to go out and hire someone to help you. 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 for better assistance free.”

The firms dealing with loan modification justify their stand. They argue that it is they who are filling up the vacuum left by unresponsive lenders. The non-profit groups may have good intentions but they lack the professional finesse of those in the line. Moose M. Scheib heads a loan modification company in Michigan. His firm charges $1,500 for negotiating loan workouts. He said, “I think the difference is probably more attention you get from us.”

There are no federal laws that prevent firms from charging fees for services rendered. A cocktail of state and local laws rule the roost. For instance Virginia does not bar the practice as these firms come under the umbrella of laws pertaining to credit counseling. However registration is required.

Maryland has sent out a warning in September that under its present legal set up the loan modification companies cannot charge upfront fees. The authorities in Maryland have recovered $10,000 for foreclosure victims who had been misled by firms claiming to negotiate loans. The state says that the problem is not just about fees but something bigger. It involves not only the wastage of money but of valuable time – time that could have been used to save the house. Even if the money is returned, the time will not come back allowing the borrower a chance to fight foreclosure.