There are lots of good people out there who can help you get a better mortgage. And then there are the scammers. How do you tell the difference?
Are there any legit nonprofit agencies to work with on loan modification? If so, how does one identify a legitimate agency from a scam?
— Kara S., Homewood Ill.
There are many honest, qualified and caring professionals who are trying to help the millions of American homeowners who are struggling with their mortgages and at risk of losing their homes. And they’re very easy to find. (More on that in a minute.)
Unfortunately, there are also hundreds — probably thousands — of unbelievably sleazy con artists who are posing as legitimate housing counselors and inflicting even more pain and suffering among homeowners already in financial distress.
The first round of mortgage fraud — the mid-decade wave of rogue lending that arguably got us into this mess in the first place — has now been replaced by a second, even more despicable scam called “foreclosure rescue.” These folks often refer to themselves (not completely erroneously) as “foreclosure specialists.” What they specialize in is ripping off people who are desperate for help at one of the most vulnerable points in their lives.
Part of the problem is that the victims of this scam are such easy targets. Once you get in trouble with a mortgage, it becomes a matter of public record — even at the earliest “pre-foreclosure” stages. To get started on this fraud, all it takes is a trip to the local town or county clerk’s office to compile a fresh list of potential victims. Many states make life even easier for the scammers by requiring lenders to publish foreclosure notices in the newspaper.
There are variations on the “rescue” scam, but you should be aware of the common elements and red flags. The first is the demand for a large, up-front fee connected to sweeping promises to resolve your mortgage trouble in short order. This is the “if it sounds too good to be true” red flag.
The next warning sign is any “solution” that involves you signing over the deed to your house. There are several very plausible scenarios scammers use to sell homeowners on this idea, but no legitimate housing counselor will ever suggest you do so. Ditto for instructions to make mortgage payments directly to the counselor. Or offers to buy your house and rent it back to you. Or advice to not contact your lender or lawyer and work only through the mortgage counselor.
If you hear any one of these statements, promptly stand up and leave — or hang up and don’t call back. No “Thanks for your time” is required on your part.
To contact a legitimate counselor, go to the Web site for the Department of Housing and Urban Development — which certifies legitimate housing counselors — to find an accredited agency near you. You can also get a referral from the National Foundation for Credit Counseling, a nationwide network of local counseling agencies that help people with a broad range of consumer lending issues. Most homeowners who get in trouble with a mortgage also have other credit problems. A qualified credit counselor can help you with those, too.
If you’re having trouble, there’s no need to wait to find a good counselor to get started. Contact your lender as soon as you think you may need help. If you’re behind, don’t ignore your lender’s letters or calls; the longer you wait, the harder it will be to get your loan modified.
But there are no guarantees. Despite the government’s recent commitment of $75 billion to promote loan modifications, the program is voluntary. If a lender modifies a loan to a more affordable monthly payment, they get paid a government bonus. But there’s no requirement that they do so.
For more information on foreclosure fraud, tips on how to talk to your lender and how to get real help, check out our interactive guide to rescue scams.
For a given dollar that I may use for savings, 401K retirement investment or consumer spending, which is most simulative to the economy?
— Russ B., Oakland, Calif.
Spending that dollar is the most effective way to get the economy growing again.
A lot depends on where you spend it, of course. If the person you pass it along to stashes it under their mattress, you’ll get less stimulus bang for your buck than if you go out to dinner and use it to tip the waitress or buy groceries or give it to your mechanic to get your car fixed. The more times that dollar moves along before it takes a breather in a savings account, the more impact it has. Economists call this the “multiplier effect.”
Most of the economic activity in the U.S. (about two-thirds or so) involves people buying stuff from one another or paying someone else to do something for them, like preparing a tax return or making a cheeseburger. About an eighth of GDP comes from federal, state and local governments spending your tax dollars. The rest comes from the value created by people making things, growing food, putting up buildings — that sort of thing.
The main reason the economy is in recession is that consumer spending slowed sharply when the boom in house and stock prices turned to bust. Too much of that boomtime spending was based on phony money — credit that never should have been lent, or house and stock prices that ran up too far, too fast.
Not only is that extra spending power gone (for now, anyway), consumers have gotten very nervous about the future. So they’re stashing a lot more money in savings. Consumer spending has also taken a big hit from the millions of jobs lost since the recession began 16 months ago. Those lost wages take even more spending out of the economy.
There’s nothing wrong with consumers saving more money — it was inevitable after the savings rate actually went negative during the boom. And some of the money you stash into savings eventually helps the economy grow. If the bank that pays you a little bit of interest on your CD lends the money to a young entrepreneur who starts a clothing line and hires six people, that creates more economic output.
The problem is that banks aren’t lending as much as they usually do because they’re still cleaning up the mess they made by lending too much money to too many people who now can’t pay it back.
Stashing money away for retirement is also a great place to put your money. It will eventually have a positive economic impact when you retire and start spending it. To the extent that your personal retirement savings puts less pressure on the Social Security system, you’ll also be doing the economy a favor. But that impact won’t be felt for a long time.
In the meantime, do your patriotic duty: Treat yourself and a friend to a night out. Don’t forget to leave the waitress a nice, big tip.