As mortgage services pop up, regulators warn of scams

At least a half-dozen local companies have sprung up recently offering to help home-owners avoid foreclosure even as federal regulators crack down on some of those businesses.

The companies tout insider information, attorney connections and an ability to convince lenders to lower mortgage payments. They ask for fees up front and, in many cases, guarantee results.

Federal regulators call some of them "bottom feeders" that take advantage of financially vulnerable homeowners. They say people at risk of losing their homes should seek help for free from government-approved nonprofit counselors.

Virginia lawmakers, too, are trying to rein in the budding industry.

In Hampton Roads, prices range from $795 to more than $2,000 for what, in some cases, amounts to offering advice, collecting personal financial information and passing it on to another company to negotiate with the lender.

"People really could do this themselves if they just had enough information," said Dotty Acampora, a foreclosure prevention counselor for the Virginia Beach-based nonprofit agency Virginia Beach Community Development Corp.

Acampora, who spent more than a decade as a mortgage broker in the area, said it doesn't make sense for homeowners to pay a company for the service. Lenders have been much more willing recently to work with

homeowners as more national attention has been placed on loan modifications, she said.

"They really just need to communicate with their lenders," she said.

The people running local fee-based services are mortgage brokers and real estate agents, attorneys and accountants. All say their expertise can make a difference when it comes to convincing a lender to change a loan.

Danielle McDole, a mortgage broker, founded Real Estate Resolutions LLC in Virginia Beach. She said she is only trying to help people get what they can in what can be a difficult process.

"Basically we have a consultation with someone," she said. "We collect their income documentation, and we talk about what can be done, what can't be done."

If McDole determines that a home-owner might be a candidate for a modification, she collects a fee ranging from $500 to $1,500. The company may then refer the client to an attorney who handles the negotiation with the lender. The attorney charges another fee, which can tack on $1,000 or more.

Real Estate Resolutions uses a picture of President Barack Obama above a quote about distressed homeowners on its Web site to attract clients. The site,

www.modifyhamptonroads.com, was launched about a month ago. It includes testimonials from clients and a frequently asked questions section that tells prospective clients that they can do the work on their own, "just as you can legally represent yourself in court or represent yourself if you get audited by the IRS without attorney representation." It suggests that a "professional negotiator with a decade of experience negotiating loss prevention cases" may get better results. "Why gamble with your biggest investment?" it asks.

When first asked how many clients she had helped, McDole said none because the company has been in business only about a short time. She said the client testimonials on her Web site are "marketing," then added that they were "actual situations."

McDole later called back with Angie Carney on the phone. Carney, from Virginia Beach, explained that McDole had succeeded recently in negotiating an interest rate reduction that brought her monthly payment down to $1,000 from $1,300 for two years.

Carney, 44, said she had fallen four months behind on her mortgage and had tried talking to her lender, HSBC Mortgage, with no luck. McDole said the lender negotiated with her company, and as a result she didn't need to involve an attorney. She charged Carney $1,000.

Before she opened Real Estate Resolutions, McDole owned Everyday Lending Mortgage Corp., a subprime mortgage business. That company, now defunct, is a defendant in a civil mortgage fraud lawsuit. McDole said the suit came about because of the actions of a single employee. She said that as CEO of Everyday Lending, she was unaware of the employee's actions.

She said the woes of her former company led her to bankruptcy. Last year, three houses she owned were repossessed by banks, according to her personal bankruptcy filing in November. She also offered to give up three additional properties as she liquidated her assets in a Chapter 7 bankruptcy.

McDole declined to comment on her personal foreclosures, saying they have little to do with the business she now operates.

Marie Avery, a mortgage broker for Newport News-based Axcel Financial Corp., charges $795 for her loan modification service. She takes payment after the deal is approved.

Since she began negotiating modifications a few months ago, she's submitted about a dozen applications, eight of which were successful, she said.

"I do the negotiating myself, which is partly how I keep my cost down," she said. "My advice for the average consumer is, 'If you find someone asking for a fee up front, walk away.' "

A Virginia law that will go into effect on July 1 will make charging up front for foreclosure prevention services illegal.

"There is an overriding concern that the money would just be taken and nothing would be done," said Dave Irvin, chief of the antitrust and consumer litigation section for the state attorney general.

That wouldn't happen at Nationwide Loan Modification Bureau LLC, said Jason T. Gillentine, owner of the Virginia Beach company that launched in December. Gillentine, a former loan officer with United Capital Mortgage, charges $1,200 up front for his service.

"I will not take people's money and not provide a service," Gillentine said.

His process is the same as McDole's - the company determines whether someone is a good candidate, takes down the individual's information, and passes it on to an attorney, who typically charges another $1,200, Gillentine said.

Gillentine said he decided to open the business after he negotiated an interest reduction on his ex-wife's home.

Mike Stith of Portsmouth was one of Nationwide's clients. The 27-year-old came to the company after falling several months behind on the mortgage for his three-bedroom home in the Highland-Biltmore neighborhood.

The company wanted $800 up front, but it guaranteed results, Stith said. He and his wife took the money they had saved for the mortgage payment and instead gave it to Nationwide to begin the process.

"They assured us that it would be OK if we did that," Stith said. "Our credit was already shot."

A few weeks and about $1,500 later, the Stiths' lender agreed to lower their monthly mortgage payment to $600 from $900 for six months. The lender, HSBC Mortgage, also agreed to defer the missed payments to the end of the loan, bringing the family up to date on their payments.

"At the end of the six months, they're going to review things again and see if we can handle the previous payment," Stith said. "We're hoping to get an extension of the plan."

HSBC urges borrowers to call them at the first sign of trouble paying their mortgage, said Kate Durham, a spokeswoman for the institution.

As an alternative to calling them directly, HSBC recommends seeking assistance from a free nonprofit housing counselor, she said.

"We go to great lengths to work with our customers to avoid foreclosure," Durham said in a e-mail, adding that last year the institution modified approximately 92,500 loans.

Gillentine said he has helped other clients get loan modifications, but he has been unable to help himself. He's been in default for five months on the loan for his Portsmouth home after being unable to convince his lender to convert his adjustable-rate mortgage a fixed interest rate, he said.

Both Nationwide and Real Estate Resolutions tout their relationship with local attorneys, who they say can also help move the process along. Both have agreements to pass clients to Scott Alperin, a real estate attorney in Virginia Beach and a registered agent for the companies.

Alperin is happy to accept the referrals, but he acknowledged the loan modification businesses that simply collect paperwork are an unnecessary step.

He said it normally takes five to 10 hours to handle a loan modification. The preliminary legwork, essentially what many of the companies that refer clients to him offer, takes about two hours, he said.

"There's a lot of people who have jumped on the bandwagon because they see it as a business opportunity," he said.

Alperin also sees it as a business opportunity.

"Why should I discriminate against clients they refer to me," he said. "Those companies are out there advertising, and I don't really advertise."

Alperin said homeowners often turn to the fee-based businesses because the free government-sponsored and nonprofit services are underfunded and swamped.

Earlier this month, the nonprofit Community Housing Partners eliminated its foreclosure-prevention counseling service in part because of overwhelming demand.

Faith Schwartz is the executive director of the Hope Now Alliance, a national network of housing counselors approved by the Department of Housing and Urban Development. She said there are more than enough counselors endorsed by the Hope Now to go around. She noted that the alliance's telephone hot line is the only service available around the clock to help homeowners.

The problem for some borrowers, Schwartz said, is that they feel more likely to get help if they pay for it.

"No one can promise they can help until they know the full circumstances of the borrower," she said. "Unfortunately, borrowers want certainty in an uncertain time."

Acampora, the foreclosure counselor at the Virginia Beach Community Development Corp., said the organization does not turn away troubled homeowners.

The group walks the individuals through the entire modification process, from collecting financial information, contacting the lenders and negotiating. Much of the counseling is just informing homeowners what to say and how to say it, she said.

"A lot of times when they get on phone with these lenders, they're at work, they don't have their financials in front of them, they're whispering into the phone," Acampora said.

Three of her recent clients went first to fee-based services and spent thousands of dollars but still did not get their mortgage payments reduced, she said.

"Some of these people are desperate and don't want to lose their home," she said. "They see the ads for these services and just call."

The process can take time, and there may be a need for services that can do the work for a fee, said Jack Guttentag, a professor of finance emeritus at the University of Pennsylvania's Wharton School. Consumers, though, need to be able to discern whether a company can actually help them.

"I have not yet found a way of distinguishing the ones that provide a reasonable service for a reasonable price and the ones that are a scam, and the ones that are in between," said Guttentag, who runs the free mortgage advice Web site mtgprofessor.com. He thinks the services should be able to charge up front if they want, but the total cost should be less than $1,000 and be refundable if no modification is granted by the lender.

Even under those conditions, he said homeowners need to be cautious when going with a fee-based company.

"It is fraught with hazard," he said. "If they go to someone who solicits them, they have a high probability of paying too much, or not getting anything all."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com