Mortgage Modifications: California Says “Prove It”
You see a lot of claims regarding the success of loan modification programs. There’s a ready market for such services because more than 300,000 borrowers per month are now receiving foreclosure notices according to RealtyTrac.com. If you were going to lose your home you’s be interested also.
The problem, of course, is that very few loans are actually being modified. You can find lots of figures relating to how many people start loan modifications but those are not the numbers that count. The key point is not how many people start loan modification programs, it’s how many succeed with trial periods and then go on to keep their homes. The failure rate is enormous. The latest mortgage modification report from the federal government shows that the re-default rate for modified loans is nearly 60 percent (59.5%) after just six months.
Now the California state attorney, Jerry Brown, has come out with a new directive. It has ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office. Brown has also sent letters demanding that 27 loan consultants substantiate success claims made on the internet and in direct mail advertising.
At the same time, the state bar association has begun to crack down on attorneys who are nominally in the loan modification business. Here’s why: Under California law the ability to collect an up-front fee is limited — unless you’re an attorney. So, some loan modification operations appear to be run by law firms but are actually just fee-splitting operations where the attorney’s real job is to collect cash up-front rather than to provide case-by-case legal services.
California has the right idea — and other states should also start asking tough questions when it comes to loan modification claims.
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