Foreclosure Counseling: Preying on the Needy?

As reported by CNNMoney.com - "Mortgage rescue or rip off?":

If mortgage lending was the Wild West during the boom years, foreclosure-prevention counseling is the lucrative new frontier of the bust.

Nearly 1.6 million borrowers are in jeopardy of losing their homes this year, according to economist Mark Zandi of Moody's Economy.com, and thousands of new foreclosure-rescue companies are rushing in to offer the troubled homeowners loan work-out assistance. For a price.

They're looking for you:

Usually homeowners seeking mortgage modifications call their lenders directly or work with non-profit community groups. But many borrowers are now turning to for-profit companies as their mailboxes are flooded with work-out offers.

Each day private firms go online or visit courthouses across the country to pore over foreclosure filings, which are public records. "By 10 or 11 o'clock, they've mailed out solicitations to anyone with a foreclosure filing that day, promising to save their homes," says Jeff Hart, a prosecutor with the Ohio attorney general's office.

Once a borrower contacts a foreclosure-prevention company, the counselor takes their financial information, analyzes how much the client can afford, and then contacts the lender and negotiates new mortgage terms.

Look out, here comes the fraud:

"Folks need to be really careful," said Chris Kukla, a spokesman for the Center for Responsible Lending. "In many cases, these are no better than scams. You should look at all your low-price or free options before signing on with a for-profit company."

One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with oversight laws varying state by state. As a result, some marginal characters are drawn to the industry, ones who use high-pressure sales tactics and play on fear.

Many firms demand hefty up-front fees, which they keep even if a loan is not successfully modified. Only a dozen states, including Minnesota, New Jersey, New York, Nevada, Massachusetts and Maryland, prohibit that tactic.

As usual the markets are at work. Unfortunately, there's always an angle to be played when it comes to scam artists. As far as we're concerned, this housing market crisis is an endless playground that will enable these scam artists to take advantage of the most desperate individuals in their greatest time of need.

Guaranteed, people will be taken for a ride. Don't be one of them. It's always a few that make a bad name for the rest. Do your homework. Contact multiple experts. Get in the know.

Ignorance is not always bliss.