Loan-modification firms wreak havoc
Steve Henn reports on how loan-modification firms are preying on already desperate people who are facing foreclosure. This story is part of a joint investigation by Marketplace and ProPublica.
A sign in the sales office of a company called U.S. Foreclosure Relief. It says "Numbers don't lie ... people lie!" Someone wrote on it: "And sales people" (ProPublica)
More on America's Financial Crisis
Links
- Audio: Phone call between saleswoman from U.S. Foreclosure Relief and Helen from Florida
The Federal Trade Commission alleges the U.S. Foreclosure Relief saleswoman on this call lied to the potential customer about the firm's success rate and its relationship with an attorney. The saleswoman also suggests the caller stop paying her mortgage and instead pay an upfront fee to hire the firm. - The mortgage-modification scam
- Why Authorities Haven't Stopped the Foreclosure 'Rescue' Boom
(ProPublica.com) - "Foreclosure Rescue" Companies: Documents
(ProPublica.com)
TEXT OF STORY
TESS VIGELAND: According to attorneys general across the country, the biggest, most dangerous mortgage scam going right now is loan modification.
Roughly 1,000 firms popped up over the last year offering to help struggling homeowners. They'll claim to cut your interest rate and reduce your monthly payments, in exchange for big fees, paid upfront.
As Marketplace's Steve Henn reports, in a joint investigation with Paul Kiel of ProPublica, these firms change names, move and reorganize themselves so quickly, it can be hard to know who you're dealing with.
Steve Henn: Late last year 21st Century Legal Services, a mortgage modification firm, made its pitch to Kathleen O'Brien. She and her husband live outside of Philadelphia. The offer seemed heaven sent.
Kathleen O'Brien: My husband is self employed. As of October of last year, we were falling into the money pit, so to say. The income wasn't coming in as we needed and we were trying to get a break.
O'Brien had called her bank and other lenders hoping to refinance her loan.
O'Brien: I hit a brick wall and I couldn't get anywhere.
Then 21st Century found her. It proposed a 30-year, fixed-rate mortgage. It promised an interest rate of 4 percent or less. It said that would save the couple close to half a million dollars over the life of their loan. But there was one catch -- 21st Century wanted a big fee now.
O'Brien: Basically they told me don't pay your mortgage. Alls that they wanted was $4,500 over a three-month period. I was to write then a $1,500 check and then post-date two more checks.
After the last check cleared, 21st Century stopped taking her calls. Then in April this year she got the first foreclosure notice from her bank.
O'Brien: I was scared.
She was more than $9,000 behind on her mortgage. And her bank said 21st Century had not been in contact for months.
Even in the beginning O'Brien had been skeptical.O'Brien: And it was very difficult, because I felt like I was losing everything I worked for.
O'Brien: I went onto the Internet to check them out. They weren't listed with the Better Business Bureau or anything else. I couldn't find any bad information on them. After I got the foreclosure letter I went back and looked them up again and they were rated F.
Alison Southwick at the Better Business Bureau says mortgage modification firms are popping up all over. Two years ago...
Alison Southwick: There were a handful of companies that were producing hundreds of complaints across the country.
Since then, there's been an explosion.
Southwick: Now we're seeing hundreds and hundreds of companies producing a handful of complaints each. The situation has really become kind of like a game of Whac-a-Mole -- where a company will pop up, rip off a few people or close their doors temporarily, or even just change their name.
Law enforcement and the Better Business Bureau have a hard time keeping up. Firms reorganize so quickly, checking a name isn't even enough.
Tom McNamara was a receiver who helped the Federal Trade Commission shut down a firm called U.S. Foreclosure Relief.
Tom McNamara: It's a boiler room operation. It's no different than a lot of different boiler room operations that you see that operated on the fringe or on the wrong side of the law.
The firm operated under eight different names in just two years. It spent $70,000 a week on advertising. And it collected more than $9.5 million in fees. When an employee insisted they should stop telling clients that the company can halt foreclosure, a sales manager e-mailed back. Here's an excerpt.
Original e-mail, read by an actor: If we say "WE DO NOT STOP FORECLOSURE" we are going to lose 75 percent of our business. If they implement this verbage [sic] in customer service, excuse my language but WE'RE F****ED!
The company's lawyer said the firm's problems were caused by a couple errant, rogue sales people who lied in e-mails and on calls. But after examining the firm's books, McNamara doesn't think it's possible to run a business like this both legally and profitably. And even after the FTC and local law enforcement shut down U.S. Foreclosure Relief, the company's employees didn't stop working the scam.
McNamara: Just before we walked in, these guys were advertising for more sales folks.
But the company's ads on Monster and Craig's List didn't mention its name. So after the FTC's early morning raid, after McNamara fired the firm's entire sales force...
McNamara: That afternoon, I got the resumes from just about every one of those boiler room telemarketers. And immediately -- talk about Whac-a-Mole -- those folks just walked across the street, sent out their resumes and started again.
Web entrepreneurs make it easy for anyone to launch their own loan modification business. There are online offers for Loan Mod kits that promise to provide "literally everything you need to know about how to start your own loan mod business from scratch." So law enforcement officials have this simple piece of advice:
Jerry Brown: Advance payment before services are rendered is not a smart idea.
California Attorney General Jerry Brown.
Brown: Don't give money upfront. Go first to your bank or go to Legal Aid or some other reliable service. Don't take a stranger's word that he can help lower your loan.
Because by the time a company builds a bad reputation, there's very little to stop it from simply shutting down and starting up again under a new name.
I'm Steve Henn for Marketplace Money.
Vigeland: Late this week, the FBI raided the offices of 21st Century, the firm that promised to help Kathleen O'Brien.
The agency declined comment, saying the raid was part of an ongoing criminal investigation.
Comments
Comment | Refresh
From langhorne, PA, 10/11/2009
Yes I agree but until you are in these shoes you will understand. We could afford the house when we bought it but the economy got the better of us. My husband being self employeed took a hit. My daughter and son-in law lost their jobs and had to come live with us. We did not ask for this and thought that we would be fine. Surprise ! We are not the only people that have been a victim of circumstance. On top of that we did not know that the value of our house would go down that far that it is not worth what we paid for it. Trust me if I had a crystal ball to know all of this I never would have moved. The American dream to work hard for what you want is lost. Please don't past judgement till you have walked in other peoples shoes.
Kathleen O'Brien
From Marblehead, OH, 10/04/2009
gbgb and Nick Lento are both right. The modification sharks are bad people and they should be stopped. But you can't have a scam without a sucker to buy into it. And we seem to have way too many people out there who have not learned this very basic lesson: if something sounds too good to be true, it probably is. Sure, we had lenders pushing people into mortgages they couldn't afford. But we also had too many people out there who thought they deserved to have more house then they could afford, and that they really didn't have to save and wait before buying.
(And I can't help but wonder: if 21st Century promised to save the O'Brien's over $500,000 in interest, just how expensive was the house they bought?)
09/28/2009
You know what? This is not the first time the so called victims are being stupid. They have been stupid. That is how in the first place they landed in this situation: By participating in the real estate bubble and buying houses they could not afford.
The second time they are being stupid by believing that by some magic some body is going modify the loan win unbelievable terms.
In my opinion there is no point wasting tax payer money on these people. The stupidity never ends.
Just scrap the load modification program.
From NJ, 09/27/2009
This story is both heartbreaking and enraging. Anyone whose blood wasn't boiling by the end of the story is either one of the crooks or doesn't have much of a heart.
The fact is that there are tens of thousands of "silver tongued sharpies" out there who run these con jobs on a perennial basis.
Until we begin actually treating white collar corporate crime as CRIME this will never stop.
The actual first line EMPLOYEES who pull this crap need to be treated like any other mugger or burglar and they need to spend, say.....5 years in jail for the first offense. The managers and "owners" should be getting ten to twenty.
The fact is that scamming is as "American" as apple pie and has been going on practically forever.
Our corporate laws allow people to run up obligations and to then escape them by simply starting up another business. Proving fraud is way too labor intensive/difficult when there are tens of thousands of scammers and only a few hundred feds.
The laws need to be severely tightened up and they need to be given RAZOR SHARP teeth.
Sadly, the scammers are often very rich people who don't just spent big bucks on advertising. They spend on politician. Look at many of the scandals that have come to light, you'll often find that the "money people" have all manner of shady backrounds.
The kind of people that get screwed by these bastards are mostly good decent gullible trusting souls...and such people tend to not have much political clout in out system where legalized pay to play bribery is the norm.
The whole financial services industry is a scam in the sense that all of the motivations are for the sales reps to get people to invest in instruments that are high risk, since that's where they make the most in "commissions".
Look at how the industry is resisting the creation of a financial consumer protection agency!
We need radical and draconian new laws and new law enforcement structures to really clean up this mess. And that's not likely to happen anytime soon, so long as the people who write our laws are beholden to the people who fleece the sheeple.
I assure you, everyone who worked in the mortgage brokering industry in the years leading up to the bust, knew that they were screwing people and that the "jig would be up" someday.
The line between the out and out telemarketers with no credentials who are the footsoldiers in the blatantly illegal scams you exposed in your report...and the thousands of Goldman Sachs employees who got 700K "bonuses" that consisted of the trickle downing of about 17 TRILLION dollars of taxpayer funded bailouts....that line isn't so sharp.
It's the same scam. The terms and the techniques change....and at the high level the scam is LEGAL; but at the core it's all the same kind of stinking deception and dishonesty.
We avoided the crap totally hitting the fan for a while....but, ultimately, the kind of con job capitalism that is the norm in our gobal economic system is NOT sustainable.
Capitalism can ONLY work when it is severely regulated so that only hard work, real risk and real productivity is rewarded. What we have now is a system where the most dishonest thieving deceptive legally criminal types walk off with all of the money earned by the hard working decent people who actually create the wealth.
From OR, 09/26/2009
Are lenders/firms not required to have and present some kind of legal certificate that they are government approved before they can act as loan-modification firms.
From Tempe, AZ, 09/26/2009
It is a shame that people who can and should be helped are contacted first by the scam artists (or read this simplistic ariticle). Then, they don't get the help from the legitimate of us. Unfortuneately (Jerry Brown), there are costs involved in providing this service, but modifications get done every day by third parties, saving home owners thousands of dollars in interest costs and, more importantly, home ownership itself.
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