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Facts I've discovered after months of investigation into private loan modification companies, our government's response to the foreclosure crisis, and banks.
No one is or would ever defend fraudulent loan modification companies. They are pond scum, and should unquestionably go to jail. Sending them to Guantanamo would be fine by me.
That being said, the legitimate loan modification companies are doing a MUCH better job helping homeowners keep their homes by negotiating with lenders in order to modify their payments so they become affordable for the homeowner. You heard that right… A MUCH BETTER JOB.
Their only "crime," according to Treasury Secretary Tim Geithner and countless others, is that they charge for their services. Mr. Geithner, you are an ass. What you're doing to help distressed homeowners, as of today, we could put in a thimble.
The government's responsibility here is to regulate the loan modification industry to protect consumers. You know, punish the bad guys and leave the good guys to do their jobs, help homeowners who are in trouble, and earn a fair profit as a result. If that idea sounds familiar, it's because that's how EVERY single other business or industry is handled here in the U.S. of A.
The government, obviously, can't seem to figure out how to regulate the loan modification industry, so they are abdicating their responsibility by making the blanket statement about loan modification companies: "If you have to pay, walk away."
Paying isn't the problem, people… it's paying and not getting that's a problem. Paying and getting… not so much.
Just this very morning, Geithner and Attorney General Holder held a press conference in Washington on how the government will NOW start cracking down on fraudulent loan modification companies. It was political grandstanding at its finest.
During the press conference, Geithner said: "These predatory scams callously rob Americans of their savings and potentially their homes. We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar."
Well, thanks Tim. Should we applaud you for doing your job… finally?
Holder then added his two cents… "If you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you."
(In case you're wondering what discrimination has to do with anything we're talking about here, Holder's the black guy, and new federal laws dictate that African Americans in government must use the word discrimination in at least 72% of their statements.)
In the AP Business news story, written by Alan Zibel and Christopher Rugaber, that went out on the wire immediately following this morning's press conference, it also says in reference to loan modification companies: "While some are legitimate, authorities say many are con artists."
Wow, "some," and "many"? Gee whiz… you guys and your technical talk. Could you be more vague?
Their article also states: "It's difficult to gauge if even the legitimate consultants are more effective than nonprofit credit counselors who also work with lenders at no charge."
Is it "difficult"? Why would that be, I wonder? If that's "difficult" for our government to gauge, they must be having a dickens of a time fixing the country's banking institutions. Credit default swaps and complex derivatives must be absolutely giving them fits.
Why don't they just tell the truth? The reason it's "difficult to gauge" the relative effectiveness of legitimate loan modification companies as related to the nonprofit credit counselors who offer to work at no charge, is… the non-profit ones haven't done much if anything as yet. The only other reason it could be difficult to gauge is that absolutely no one in government has tried.
Well, I've spent the last several months investigating the private sector's loan modification companies and I've come to very different conclusions than Mr. Geithner, Mr. Holder and those in the media. Of course, I'm not just sitting in an office postulating as to what might be happening out there. I'm driving around in my car with a film crew, interviewing actual homeowners and loan modification company executives, recording their stories and filming while they attempt to call the government help-lines and the banks themselves.
Before I get into the specific results of my investigation, I would think that common sense would dictate that legitimate private loan modification companies would do a much better job of helping troubled homeowners for at least two reasons:
A. They are, for the most part, the only people actually helping consumers get their loans modified. That's right, there is no government program in place as of today.
B. They are mortgage experts being paid to represent a homeowner's interests. That's right, in general people paid to do a job do it better than government workers or volunteers. Go figure.
Here are FIVE FACTS about private loan modification companies and why we need them to survive this government onslaught and media hyped witch-hunt.
1. They are paid to represent the best interests of the homeowner – And no one else is.
To give you a tangible example of why this is important, IndyMac Federal has just announced a new streamlined loan modification program available to homeowners, and they are now refusing to work with private loan modification companies as a result. Here's what it says, word-for-word, in the first few paragraphs of IndyMac's Website that describes their new streamlined program available to consumers:
"The goal of this streamlined loan modification program is to achieve improved value for IndyMac Federal. IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal."
Now, I'm not complaining about the language. In fact, that's probably what it should say. They're being, in my mind, uncharacteristically forthcoming about what's going on. They, IndyMac Federal, will be happy to negotiate with consumers directly in a streamlined manner, and consumers are to be on notice that they, IndyMac, will be negotiating in the bank's best interests… with absolutely no regard for the homeowner's best interests.
Fair enough, but understanding that's the situation, I'd prefer to have a knowledgeable expert watching out for my best interests, thank you very much. And I don't mind one bit having to pay that expert for their time and expertise. Of course, that's just me. Other people might choose to take a shot with a government help-line. It's entirely up to them.
Unless, of course, the government succeeds in putting all of the private loan modification companies out of business as a result of their misinformation campaign disguised as protecting the consumer from fraud. If they succeed, I suppose I'll have to call the government help-line, or face the paid experts at IndyMac Federal on my own. And won't I be happy about that… just wait until Timmy gets my holiday card next year.
2. As of today, there is no government program available –
This shouldn't be something I have to write much about, and it's certainly not something about which you have to take my word, or anybody else's for that matter. How do I know that there's no government program in place as of today? Because I called the government help-line myself and I also went in to speak with the nice folks at Well Fargo Bank. It takes some time, a couple of hours sitting on hold to be specific, but I encourage others to do the same.
On February 19, 2009, ABC News, in an interview with FDIC Chair Sheila Bair, reported that:
"The initial effects of President Obama's massive housing rescue plan will be felt as early as next month, one of the administration's top economic advisors predicted today."
What's today? March 19th? No, it's April 6, 2009. And there is no program in place. Period. Wells Fargo reports that they haven't even received the contracts from the Treasury Department as of today. I'm sure once they get those contracts, they'll just sign them without reading them and send them right back to Timmy at Treasury. Because that's always how things work when there are contracts, banks, and the Treasury Department involved, right?
After the contracting between the nation's banks and Treasury is completed, then according to FDIC Chair Sheila Bair, speaking on Good Morning America, "it will take some time to screen candidates, verify their incomes, and provide financial counseling to some applicants."
I'm quite certain that it will, as Ms. Bair said, take some time. I sure hope my bank will wait before foreclosing on my home. I'm sure they will. After all, they were so nice when I took out my mortgage.
3. The President's housing rescue plan doesn't help everyone who needs help – By Sheila Bair's own admission, and President Obama's too I might add, the Affordability and Stability Program will not help millions of homeowners at risk of losing their homes to foreclosure. According to Ms. Bair, again as quoted from her February 19, 2009 interview with ABC News:
"Bair also said that the (program's) huge expenditure won't halt an avalanche of foreclosures, conceding that there are millions of homeowners that are now so far 'underwater' – their homes now worth less than their mortgages – that they will inevitably lose their homes."
Inevitably? Did Ms. Bair just say inevitably? Now there's optimism for you. I guess she's counting on the government putting the legitimate loan modification companies out of business PDQ… pretty darn quick, as my mother used to say.
Okay… you heard her folks. According to FDIC Chair Sheila Bair, if you're in trouble with your underwater mortgage, it's inevitable that you're going to lose your home to foreclosure. Better start packing. No reason to try a legitimate loan modification company who might be able to help. It's inevitable, according to Ms. Bair, and she must know. She's chairperson of the FDIC, after all. If she doesn't know, who would? I mean, the FDIC saw this whole thing coming a mile away, and that's why they stepped in to stop our entire economy from going down the drain, right? Whew… we sure dodged a bullet there… thanks Sheila!
Sheila Bair also told ABC News that Obama's plan will "at least help 3 million to 4 million of those borrowers in distress". Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, however, dismisses Bair's claims. Marks told ABCnews.com:
"She is absolutely wrong. It will have minimal impact. They have pulled from the sky the 4-5 million mortgages that will be affected. It's just hype."
4. The President's Affordability & Stability Program only modifies loans for five years – That's right. President Obama's plan, assuming you qualify for a modification, only modifies your adjustable rate loan into another adjustable rate loan, one that adjusts to the prevailing rates five years from now. If rates are high five years from now, well… I guess we'll just see what happens then.
The fact is that legitimate private loan modification firms are achieving significantly better results for homeowners. Routinely, these private sector firms get modifications that change adjustable rate loans into 30-year fixed rate mortgages. It's not uncommon to see reductions in the principal amount owed by the homeowner.
In one specific case I witnessed recently, the loan modification firm got the bank to agree to reduce a $4,000 a month payment on adjusting loan, to $800 a month for three years, and after that, the payment tops out at $1900 a month. I would have to believe that the President's plan, or a consumer calling their bank directly is highly unlikely to achieve that result.
5. What President Obama said about private loan modification companies IS WRONG – President Obama has said "if you have to pay, walk away" from loan modification companies. He was wrong to say that, and what he said is harming troubled homeowners in an attempt to protect others from scams. He needs to know what he's done. His words will cause some homeowners to lose their homes unnecessarily. And I do not believe that was his intent.
I have personally visited with several loan modification companies over the last month. I have interviewed their CEOs, visited with their customers, attended audits being conducted by government regulatory agencies, and spoken with bankers, none of whom would agree to be mentioned by name. All of the companies I've interviewed and visited are unquestionably helping troubled homeowners and none could be considered in any way "scams". In fact, in my view, they are all critical components in any solution to the foreclosure crisis.
One such company, Green Credit Law Center, was one of the early entrants into the loan modification business, modified more than 300 mortgages for troubled homeowners in March 2009, and they expect to modify 600 mortgages on behalf of consumers in April. And that's a fact. Of course, they did charge a fee for their work, but since all of their customers that I spoke with personally didn't mind paying that fee in the least, I might add, I'm thinking it should be okay.
The government needs to regulate the loan modification industry in order to protect consumers from fraudulent operators, not wipe out the good with the bad. It occurs to me that there have been quite a few fraudulent investment scams out there over the years… but I don't remember my president ever telling me not to pay Charles Schwab or Merrill Lynch their fees.
With the camera running, I asked a loan modification expert at a law firm to contact a bank to check on a loan modification. He called one, and I won't say which one, today anyway. The woman at the bank told him that he would have to get the borrower on the phone before she could talk about the loan modification in progress. He did. When all three were finally on the call, the first thing the woman from the bank said was: "You know… you don't have to pay him. You can just call us directly."
I have to say that I have rarely been so shocked at anything in my life. And this woman was not a senior level bank executive, she was someone answering questions about loan modifications in progress. That means that what she said was the result of an institutionalized training program, she didn't come up with that line herself. She was told to say it.
"You don't have to pay him"? How dare you say such a thing? You're just saying that because you'd rather have a less experienced person with which to negotiate. You are not the person that should be giving advice to that borrower.
The banks should be on notice… I'm calling you… every day… more than once… and I'm filming it, and recording it. I'm coming after you with everything I've got.
In conclusion…
President Obama was obviously told that consumers don't need to use a private loan modification company. He said that homeowners could either call a government program or if they didn't qualify for that program, they could contact their bank directly. Both statements, while true, are also wholly beside the point.
Who would tell the President something like that? The banks, that's who… who else?
After spending months investigating the loan modification industry, I've come to understand that the banks do not want private loan modification companies helping consumers obtain loan modifications. Why? Because they'd much prefer to deal with homeowners who are not experts in mortgage terms, are distressed as a result of being at risk of losing their homes, and as a result are much easier to take advantage of, simple as that.
Is that an indictment of the entire banking industry? Yes, let me be very clear… IT IS.
Banks are debt collectors. That's what they do. When a homeowner in distress calls a bank directly to ask about modifying the terms of their mortgage, they are asking the bank to write off some of the money the consumer rightfully owes that bank. Does anyone imagine that the banks will be terribly helpful in that situation? If you do, then you've never been late on your car payment or mortgage payment… because in those situations the bank is not your friend. Never have been, and never will be. They want their money, and as much of it as soon as possible is their clear goal.
It has become obvious to me that both state and federal agencies have no idea what they're doing when it comes to solving the foreclosure crisis. I'm not blaming them for not knowing, this crisis has emerged, deepened, and changed quickly. But to put legitimate loan modification companies out of business, something they are very close to accomplishing, will only make things worse for millions of Americans.
Consider this… President Obama says having to pay makes a loan modification company a scam. Illinois Attorney General Lisa Madigan to told reporters at today's press conference in Washington to "Stay away from anyone who says they will save your home in return for money up front."
And at the same time, California's Department of Real Estate ("DRE") has published an "Advance Fee Agreement," and tells consumers to make sure that the company they hire to help them with their loan modification use that agreement, which was approved by the DRE. Unless the company is a law firm, in which case it's okay to pay a fee in advance and the advance fee agreement doesn't apply.
Well, that all seems pretty clear, doesn't it? The President says don't pay. The State of California says pay, but only if a certain form is used… unless it's a lawyer… or a Tuesday… and your license plate ends in an odd number… Oh my God.
Homeowners need to watch out for these things, as far as I'm concerned:
Scams – Check out the loan modification company before you pay them a nickel. Ask for references, check the Internet for complaints, visit their offices. And if you don't feel good about the firm, don't hire them. Look around, there are others out there… today, anyway.
The President, along with state and federal agencies – Our government has failed us at every turn in this crisis. They clearly don't know what they're talking about when it comes to saving people from losing their homes, as evidenced by the fact that millions of Americans have already lost their homes to foreclosure and all forecasts point to millions more losing their homes over the next two years. Save yourself. Your government doesn't even understand the problem. Your government hasn't even gone to the trouble of talking with anyone who's actually modified a mortgage.
The administration has recently been funding numerous non-profits to assist troubled homeowners. ACORN, for example, just received $5.2 million from the Neighborhood Stabilization funds to provide some sort of foreclosure counseling. The President's plan also offers to pay banks $4500 over five years for the loans they agree to modify, assuming borrowers make their payments, of course. I hope it works.
However, I think it's worth mentioning that when President Obama says that a loan modification shouldn't cost you anything, he means "you," not "us". When a homeowner pays a legitimate loan modification company three grand to get their mortgage modified, it costs us quite a bit less... nothing, not to put too fine a point on it. And the bank that modifies the loan does so because they decided to do so. Not because the government is paying them to help fix the problem they helped to create.
And I know it works, because I've seen it with my own two eyes... hundreds of times now.
The Banks – Your bank is out for itself. They are not being honest when they tell the President that consumers can simply call them directly. It would be like the police telling you that you don't need a lawyer. Whatever your bank tells you… check it out for yourself. Do not believe them at face value. The banks have proven themselves to be less than honest, and capable of anything. Beware the banker that says "trust me, we're a bank."
I received an email from newyorkforeclosurelaw.com this afternoon. It read:
If there is any lesson to be learned out there in the new wild west of loan modifications, it's that homeowners should hire an experienced lawyer.
I just interviewed someone who was a vice president level executive at several of the banks that we've all heard about. He was let go from his last vice presidency because he asked too many questions about what was going on. I believe what he's told me. And none of it is good. I asked him about the ratings agencies that slapped triple A ratings on the mortgage backed securities and he said that everyone knew that the models weren't taking the right risks into account. But no one raised the issue too loudly. No one stopped what was happening. And bonuses went higher and higher.
He was at one of those banks when the FDIC started forcing them to modify mortgages. He said it was an incredible mess, that there were no standards. No one knew what they were doing. Nothing was consistent. He said that a friend who's still at that bank says that things are going better today. That the bank has put a lot of effort and resources into their loan modification department. He agreed with what I said in this article about the banks being out for themselves and not for the homeowner. Frankly, his statements came as no surprise to me.
Then he said something I won't soon forget: "If they had put this much effort into loan modifications in the first place, we wouldn't have had this problem to begin with."
And I hung up the phone and started to cry.
