Loan modification has become very popular in recent years. It has been used in a variety of different ways to change the existing terms of mortgages. While sometimes loan modification can be to your advantage, many times it is not. There are many loan modification scams out there that you should be aware of. Here are a few warning signs to watch out for with loan modification.
1. Upfront Fees
Sometimes you will receive offers in the mail that appear to be legitimate. They offer you something that sounds great and tell you that you have to act now to get the fantastic deal that they are offering. The deal might sound good, but they request that you pay them a processing fee or origination fee upfront. They say that this fee will help you lock in the amazing terms that they are offering you. While this might seem like a legit service, it is agianst the law to charge any money up front, you should be skeptical.
2. Too Good to Be True
If the loan modification terms that are offered to you seem too good to be true, they probably are. The bank might send you something that has terms on it that appear better than your original terms. The interest rate might be lower and the monthly payment is lower as well. However, what you don’t realize by looking at the paperwork is that there is usually a balloon payment involved with the loan. This means your new payment will be lower for several years, but then at the end of a certain period of time, you have to come up with a large amount of money to pay all at once. You either have to come up with this large sum or lose your house.
3. Computer Generated
Another common tactic is blind loan modification. This strategy involves a computer generated loan offers. Their computer system goes through accounts and comes up with an offer for several mortgage holders. The offer is different for each borrower. They send out the modification offer to you unsolicited. When you get the letter in the mail it seems like an enticing offer for you to change your loan terms.
However, when you call the bank, they have no idea what you are talking about. No one can talk intelligently about the loan with you because it was designed by a computer program. Unless you are transferred around and talk to someone with some authority, most of the people will not know what you are talking about. This makes this particular form of loan modification particularly unattractive, because it was not actually catered to your needs.
Thanks to the people over at Morgage 101 for this great article.