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Loan Modification News
Loan modification activity, reports and legislation.

Dark Side of Modification Business

Recent loan modification activity

April 7, 2009


As a national crackdown was launched on loan modification companies, several federal and state lawsuits were filed. Meanwhile, faced with bad press over predatory practices, modification companies have resorted to name calling.

In servicer bulletin 2009-8 today, Freddie Mac clarified that borrowers must currently have a monthly housing expense-to-income ratio of more than 31 percent to qualify for the Home Affordable Modification Program. Servicers are required to solicit all borrowers who are at least 31 days past due for the program by April 15.

The Federal Trade Commission filed a lawsuit on Friday in U.S. District Court for the Central District of California against Federal Loan Modification Law center, LLP, according to a copy of the complaint. The Northridge, Calif.-based company allegedly charged between $1,000 and $3,000 in upfront fees but often failed to obtain the promised modifications.

The FTC's move is part of a federal and state crackdown on modification scams jointly announced yesterday by the FTC, the Department of the Treasury, the Department of Housing and Urban Development and Illinois Attorney General Lisa Madigan. A statement from HUD indicated that the joint effort -- which aligns responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities, and the private sector -- is intended to protect vulnerable delinquent borrowers from predatory criminals.

An amended complaint was filed by the FTC in U.S. District Court for the District of Columbia against Thomas Ryan, yesterday's statement said. The Newport Beach, Calif., resident is accused of establishing the Internet address through an overseas Internet registrar to lure delinquent borrowers to what appeared to be an official HUD site.

A total of 11 foreclosure scams have been busted by the FTC this year, while more than 20 states have taken similar actions -- including 22 actions in Illinois. The agency said it sent warning letters to 71 companies because they might be deceptively marketing mortgage loan modification or foreclosure rescue services.

National Foreclosure Counseling Services Corp. was sued in a Florida circuit court by Florida Attorney General Bill McCollum on April 3, a statement last week said. The firm, which lured prospects with mailings that appeared to be from the government, allegedly charged $2,000 in upfront modification fees in violation of state law. Attorneys general in Illinois and Minnesota have already sued the company.

Florida also sued Keep Your Property Inc. for telling modification prospects to stop making mortgage payments -- a move that made it easier to collect an up-front fee of $2,200 and $550 per month during the process. Borrowers complained to the state that the company never even made contact with their lenders.

Last week, Kansas Attorney General Steve Six issued a statement warning the state's borrowers to be skeptical of modification firms that charge fees -- especially since modifications can be obtained for free.

The biggest U.S. banks completed 121,496 loan modifications during the fourth quarter, up from 116,483 in the third quarter, according to the OCC and OTS Mortgage Metrics Report released last week. The report indicated that 44 percent of loans modified during the first-quarter 2008 became at least 60 days past due within nine months. Of loans modified in the second quarter, 42 percent were delinquent within six months, while 31 percent of third-quarter 2008 modifications were delinquent within three months. The 90-day delinquency rate was around 10 percent lower.

Re-defaults were between 12 and 20 percent higher on loans serviced for others compared to loans serviced by the owner, the report said. Modifications where the payment was lowered by more than 10 percent had a re-default rate at around half the rate on loans where the payment didn't change.

An April 1 announcement indicated that many of the 1,400 workouts on $140 million in mortgages processed by State Employees' Credit Union were loan modifications that lowered the interest rates by as much as 3 percent and monthly payments by as much as "several hundred dollars."

US Court Audit, a service targeted at bankruptcy judges who may become empowered with the ability to modify loans, has aligned with National Loan Auditors and SigniaDocs to provide "a seamless mechanism for negotiating, executing and delivering legally compliant loan modification agreements electronically in final form," National Loan Auditors said Friday. In addition to identifying lender violations, National Loan Auditors said it also finds improprieties by the borrower.

The American Bankruptcy Institute launched a Town Hall Web site to generate discussion about potential cramdowns.

A do-it-yourself loan modification course is being offered for free to borrowers who completed a one-page application at, a news release last week said. The Santa Barbara, Calif.-based company hopes to profit from online advertising. said last week that it has opened for business in Arizona, California and Nevada. Its customers include borrowers and lenders The company, which charges refundable fees of $299 for salaried employees and $599 for self-employed borrowers, claims it does all the legwork involved in a modification.

Chicago-based Realty Right announced Sunday that it is offering free loan modification services for up to 2,500 borrowers.

Mortgage Fraud Examiners issued a statement this month calling loan modifications "a sham" because 80 percent of modification requests are denied and half of modified loans wind up delinquent in six months anyway. The Ashburn, Va.-based firm said it attempts to extract more favorable modification terms for borrowers by exploiting lender compliance violations -- which reportedly occur on "90 percent of all mortgages."

Mortgage Fraud Examiners Chief Executive Officer Storm Bradford quipped that people like mortgage brokers are unqualified to perform forensic audits like their own legal professionals who perform audits by hand. He explained that his competitors are using the same compliance software as the lenders used. "Anyone with two brain cells to rub together can see that's a joke."

But Philadelphia-based US Modification Review recently said that it is staffed with lawyers to help borrowers with modifications, forensic audits and negotiated mortgage terms.

US Mortgage Mod LLC, also based in Philadelphia, issued its own statement calling its competitors "corrupt," "dishonest" and "inexperienced." The firm, headed by attorneys, said fees of between $6,000 and $9,000 are being charged by companies that fraudulently guarantee specific rates or balance reductions.

MFI-Mod Squad published a list of the 20 worst loan modification companies that don't provide a refund when no modification is secured. Most of the companies are located in California -- though none have reportedly been approved by the state's Department of Real Estate to collect upfront fees.

Loan Deal Inc. hopes to generate modification prospects by hosting seminars in two California markets.

Arizona loan modification attorney Kevin Harper recently encouraged borrowers to start the modification process even if they aren't facing a foreclosure.

Michael Sichenzia, president of loan modification company Dynamic Consulting Enterprises LLC, issued a statement last month indicating that he's available to explain why it may be a few years before home prices stabilize. Sichenzia, who spent four years in prison for mortgage fraud, claims to have "saved thousands of people from the realities of foreclosures."

Federal Trade Commission, Plaintiff, v. Federal Loan Modification Law Center, LLP, et al, Defendants.
Civil Action No. SACV09-401CJC (MLGx), FTC File No. 092 3070, April 3, 2009 (
U.S. District Court for the Central District of California)

Federal Trade Commission, Plaintiff, v. Thomas Ryan, 1078 Buckingham Lane Newport Beach, CA 92660,
Civil Action No. 1:09-cv-00535-HHK, FTC File No. 092 3116, (U.S. District Court for the District of Columbia)

State of Florida, Office of the Attorney General, Plaintiff, v. National Foreclosure Counseling Services Corp., Raymond Paulk and Robert V. Dallavia D/B/A National Foreclosure Counseling Services and American Foreclosure Counseling Center, Defendants.
(Circuit Court of the Fourth Judicial Circuit in and for Duval County, Fla.)

OFFICE OF THE ATTORNEY GENERAL, DEPARTMENT OF LEGAL AFFAIRS, STATE OF FLORIDA, Plaintiff, vs. Case No. KEEP YOUR PROPERTY, INC., a Florida corporation, CENTRO DE PREVENCION Y EDUCACION CORAZONES UNIDOS H.I. VISIDA, INC., a Florida not for profit corporation d/b/a Keep Your Property; ECONOMIC ALLIANCE GROUP, INC., a Florida not for profit corporation; WILLIAM R. COLON, Individually and as an officer/president of Keep Your Property, Inc., Centro De Prevencion Y Educacion Corazones Unidos H.I. Visida, Inc. and Economic Alliance Group, Inc. and CARLOS A. HERNANDEZ, Individually and as an officer/director of Keep Your Property, Inc., and as vice-president of Economic Alliance Group, Inc.
(In the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida)

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of

e-mail: [email protected]

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