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Buyer Beware When Shopping for a Loan Modification

David Benda
Record Searchlight (Redding, California)
January 17, 2009
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With the rising tide of foreclosures not expected to recede anytime soon, offers to homeowners to modify that risky loan in a last-ditch effort to save their home also are up.

Ken Lawrence of Silverado Mortgage in Redding has had clients call him to ask whether a loan modification is a safe way out.

Lawrence says it can work but be careful.

"I have had consumers call me and ask if it's really OK to do this and the 'counselor' (who called them) has suggested they make no payments and refuse to accept calls from their lender, that they're handling communication from their lender," Lawrence said. "An advance fee was required, of course. This is obviously a scam."

Loan modifications have caught the attention of the state Department of Real Estate, which outlined some dos and don'ts in its Winter 2008 Bulletin.

Commissioner Jeff Davi, in a message titled "Be warned and be skeptical...", wrote it's generally against the law to require the payment of an advance fee for a loan modification or workout after a notice of default has been issued on the property.

A notice of default is the first step in the foreclosure process.

If a homeowner has not received a notice a default, then a licensed state real estate broker can collect an advanced fee, "but only if you have been given and signed an advanced fee agreement previously reviewed by the Department of Real Estate," Davi wrote.

With more homeowners struggling to make their current mortgage payment, many individuals and companies have entered the loan modification business in recent months.

A loan modification is when a lender agrees to repackage a loan - maybe reducing the principal, cutting the interest rate or converting an adjustable-rate loan into a conventional 30-year term - to keep the borrower in the house.

The number of foreclosures in Shasta County in 2008 increased nearly 80 percent over 2007, RealtyTrac reported this week.

Just over 2 percent of the housing units in Shasta County received at least one foreclosure filing last year.

Joe Rodola, a Redding credit counselor who also teaches monthly first-time homebuying classes, has characterized the foreclosure mess as a "real estate disaster."

Rodola, through ByDesign Financial Solutions, also is a federal Housing and Urban Development-approved reverse mortgage counselor. Last week, Rodola got an e-mail from HUD alerting him that the agency has launched a new campaign to help troubled homeowners who might be considering a loan modification.

Rodola advises distressed homeowners to contact a HUD counseling agency immediately.

"I think you need to start with HUD. It's free - you can't lose and you will get a referral to a prominent HUD counselor that may help solve the issue," Rodola said.

Reporter David Benda can be reached at 225-8219 or at dbenda@redding.com

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