High-Risk Lenders Enter Loan Modification Market

Many homeowners who had subprime mortgages are now trying to stave off foreclosure by modifiying their loans or refinancing. However, many would be surprised to know that a number of high-risk lenders are changing their business model and entering into the loan modification business.

For example, the Los Angeles, CA-based FedMod previously acted as a lender to borrowers with risky credit. Now, the company is offering loan modification services. In many cases, they are working to modify some of the risky loans that they themselves helped negotiate during the real estate boom.

Today, there are more than 650 complaints against FedMod that have been filed with the Better Business Bureau. There are also documents filed by the Federal Trade Commission (FTC) as part of a lawsuit against the company.

Fed Mod is only one of several similar companies that are currently being investigaged by the FTC. Four others are now part of lawsuits, and warning letters have been sent to 71 additional companies across the compnay.

In FedMod’s case, the company stands accused of exaggerating its rate of success in helping clients with their mortgage payments. They are charged with doing little to actually help the consumers who have been paying them upwards of $3,500 in upfront fees.

As loan modification scams continue to rise, many states are launching their own investigations into such companies. In California, for example, the state’s Department of Real Estate has ordered 210 businesses or individuals to stop their loan modificaiton or foreclosure prevention services because they did not have a required real estate license.