Let's say you've fallen behind on your mortgage. Someone knocks on your door and says they represent a company that's been authorized by your lender to help you work out a loan modification. Given all the foreclosure avoidance scams that are out there right now, you should boot the bum to the street, right?

Maybe not.

An increasing number of mortgage lenders and servicers, mostly smaller ones, are turning to third-party loss mitigation companies to assist them in working out loan modifications for customers who are falling behind on their mortgages. These companies are authorized to contact delinquent homeowners and, depending on their circumstances, help set them up for a loan modification that can help them get current with their mortgage payments and avoid foreclosure.

With increasing numbers of homeowners facing foreclosure, there's been a corresponding rise in the number of private loan modification companies that approach homeowners and offer to solve their mortgage problems for a hefty fee, usually paid up front. Many of these claim to represent government agencies or lenders. Many of them are also scams.

So how can you tell when someone represents a company that's been legitimately retained by your lender to see if your mortgage problems can be resolved?

Lender will provide advance notice

For one thing, your lender is going to let you know they're coming ahead of time.

"The initial communication always comes from the servicer, introducing us," said Greg Hebner, president of Mortgage Outreach Services Group, Inc., a third part loss mitigation company that has been contracted by lenders to help work out loan arrangements with homeowners in default on their mortgages. Hebner said his company always follows up on the lender's letter introducing them with a letter on their own before calling on a homeowner personally.

Hebner said his company is authorized by loan servicers to gather certain information from delinquent homeowners and evaluate whether they might qualify for a loan modification on the lender's own terms or under the government's Making Home Affordable program. Company representatives typically take homeowners through a series of questions designed to assess their financial status and the nature of the hardship that has caused them to fall behind on their mortgage.

"We're not a collection agency - we're just getting information," Hebner said.

Of course, many homeowners in default don't open mail from their mortgage servicers or what appear to be collection agencies, simply because the problem is a tough one to face. In that case, how do you know the person at your front door is actually representing your lender, as he or she claims to be?

Recognizing who is legitimate

One way to know, Hebner said, is that a legitimate loss mitigation company will have detailed information about your mortgage provided by the lender, such as the loan identification number, balance on the loan and details of your payment history. And to be on the safe side, you can always call your mortgage servicer to check them out.

"If they have a question, they could contact the servicer, and the servicer can say 'absolutely, this company is authorized to work for us,' " Hebner said.

Another indication is that legitimate loss mitigation companies don't charge a fee for their services - they're paid by the lenders to work with customers.

Although loss mitigation companies are rarely authorized to give final approval for a loan modification, they can often take a homeowner through the steps of qualifying them for a Making Home Affordable trial modification, a three-month preliminary process that precedes finalizing the loan modification itself. The process of qualifying a borrower is fairly straightforward, Hebner said, and is primarily based on income.

"They look at how much you make, they look at what you can afford, and if it works out, they modify the loan," he said. "As long as the math works, you'll qualify for the (modified) payment."

Still pays to talk with a credit counselor

Rich Korn, a certified foreclosure intervention counselor with Consumer Credit Counseling Services (CCCS) in Columbus, Ohio, said third-party loss mitigation agencies are a fairly new phenomena when it comes to mortgage modifications, as lenders become swamped with delinquent borrowers. He said that while they're legitimate, consumers should still check with a credit counselor before signing off on any loan modification agreement to ensure that they're getting the best deal possible.

"A lot of clients feel the offer they get is the only one they're going to get and they sign on the dotted line," he said, noting that homeowners facing delinquency often act in a state of panic. He said lenders may offer a deal that serves their interest, but is not so good for the borrower.

He said a credit counselor familiar with the loan modification process can often help a consumer work out a better deal, particularly in terms of providing a little breathing room before they need to begin making payments again and one that provides a better chance of long-term success.

Hebner said that contrary to popular belief, mortgage servicers do want to help as many people as possible, preferring avoid a long and drawn out foreclosure process. He said homeowners can help themselves by contacting their lenders as soon as they recognize they might be in financial difficulty.

"I think the most important thing is for borrowers to know their options," he said. "And the sooner they act, the better."

    Published on July 29, 2009