In a recent development, some of the top US mortgage servicers, including JP Morgan and Bank of America, have decided to pay $5 billion so that they can settle the ongoing foreclosure probe by the state and the federal government against them.

Why was this probe initiated?
The probe was initiated in all the 50 states due to the faulty foreclosure practices after the collapse in the real estate market. Most of the lenders and mortgage servicers violated state laws while foreclosing properties.

What is the new proposal all about?
In the proposal, a fund will be established, which will, in part pay for principal write downs. This fund will be administered by state and federal officials. This fund could help repay the borrowers whose homes were improperly foreclosed by the banks.

Why was this proposal made?
The State Attorney Generals and the Federal officials, during a settlement talk, offered to revise settlement terms and proposed this option to the banks so that they could fund principal write-downs for homeowners.

Forensic loan audits are the latest variation of loan modification scams. California Department of Real Estate and the State Bar of California have warned homeowners to avoid such scams because these loan audits offer no help towards saving their home from foreclosure.

What is forensic loan audit all about?
In this scam, the homeowners are made to believe that will be able to find errors, improper documentation, or outright illegal activity in the way their lender has originated their mortgage. Thus, the homeowners will have sufficient proof and documentation to challenge the lender and get assistance from him. The companies offering such services would “only” charge an upfront fee. The advertisement related to these scams can be found in the newspaper, radio and television. However, experts are of the opinion that the audits provide no benefit. Moreover, the foreclosure consultants are not allowed by law to collect upfront money for the services that they provide.

Does legitimate forensic audit provide any help?
Forensic loan audits, along with loan modification consultants try to cash in on the fear and desperation of the property owners who are facing foreclosure. There is no statistical evidence to support such claims. This is even true for those forensic auditors who are a licensed, legitimate and trained.

Thus, if you’re facing foreclosure, then your best option would be to contact your lender immediately and apply for a loan modification. Depending upon your financial situation, it is your lender who would help you know whether or not you qualify for any assistance. Your lender will offer you better help than these scam artists.

If you’ve defaulted on your loan payments, you must be thinking of applying for a loan modification to save the property. We, the borrowers, think that it would be beneficial for the lenders and mortgage servicers to modify the loan rather than foreclose. But in reality, things are different.

As per a new report of the consumer advocacy group, mortgage servicers make more money if they foreclose the property. So, who are the mortgage servicers? They are the companies who collect the monthly dues from the borrowers and distribute it amongst the investors. It has been noted that the homeowners, lenders and investors generally lose money on a foreclosure whereas mortgage servicers do not.

What do homeowners think of foreclosure?
As homeowners, we think that a foreclosure would not be a good option for the lenders and investors. Both of them would lose money if they foreclose the property. It is believed that if a lender forecloses the property, he will have to settle for 20-30 cents on a dollar.

What do mortgage servicers think of forceclosure?
The loan servicers have different priorities and thus, do not think of foreclosures in the same way as the borrowers. Servicers do make profit when a property is foreclosed unlike loan modification wherein the servicers may face a loss. Also, the incentives offered to servicers in order to help avoid foreclosure are much less compared to the profits they make by foreclosing a property. This is one of the reasons which resulted in the $75 billion program to limit foreclosures by the Obama Government. The money would be given to servicers who would modify home loans.

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Last month, Federal Trade Commission (FTC) filed a lawsuit against a Florida-based company, which had victimized more than 3,100 homeowners nationwide with their loan modification programs. The firm has been shut down for now and they have even agreed to pay off $4.1 million judgment. Also, they have agreed to work under the close monitoring by federal officials in future. Such loan modification scams have become popular these days as large number of borrowers are looking forward to modify their loans in order to save their houses. So, what are the signs one should watch out for in order to avoid these scams? Just have a look:

• Guarantee of loan modification: No company can guarantee you a success in preventing foreclosure as it would be totally the discretion of the lender whether or not he would consider your request. So, if a loan modification company guarantees you a success in preventing foreclosure without considering your financial situation or mortgage details, chances are that it might be a scam.

• Upfront fees: Check out for the upfront fees charged by the lender. Though, not all fees are illegal, still it’s better to not pay anyone who’s not a licensed law firm or attorney. There may be some loan modification companies who can charge you upfront fees without even explaining the program details. Avoid dealing with such companies as they could be scam artists.

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If you’re facing foreclosure, you can get help from your mortgage insurer. Surprised? Even I was surprised when I heard of it. Most of the mortgage insurance companies have loss-mitigation departments. The loss mitigation experts try to negotiate with the lenders and borrowers for various repayment plans.

Lenders also have their team of loss mitigation experts but most of the borrowers do not feel comfortable in negotiating with them. On the other hand, it has been noted that borrowers sometimes are more receptive to mortgage insurers. The insurer’s loss mitigation team will not call the borrower for payments but they would rather try to workout an option for the benefit of the borrowers. This attracts the borrowers to work with the mortgage insurer’s loss mitigation team.

Why will mortgage insurer help a borrower who’s facing foreclosure?

If a lender forecloses a property, it is the mortgage insurer who will have to reimburse the servicer and investor for their losses. This motivates the mortgage insurer and his loss mitigation team to negotiate workouts with borrowers and stop foreclosure.

How does the mortgage insurer’s loss mitigation department work?

The mortgage insurance companies get a list of insured loans that are in default. From this list, the insurance companies choose a group of people and contact them for a period of 60 days. The insurance companies send a letter to inform the borrowers as to who they are and why they are interested in their loan. The loss mitigation department also informs them about ways in which they can help them. If the borrowers do not respond to the letter or call the insurer, the loss mitigation department of insurance company calls them and tries to negotiate with them.

The borrower has to fill out a hardship letter informing them about his financial crisis. The mortgage insurer analyzes the borrower’s financial situation and recommends payment plans. The workout option will be finalized if the investor, servicer and mortgage insurance company approves it collectively.

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