Here’s the question:

Rachael asks,

“I am going through Echo Loans to do a loan modification. They advised me not to pay my mortgage this month. I am not behind on my mortgage, but owe more than my house is worth and my second mortgage is 12%. They advised me that my credit would be put back where it was after the modification is done. Is that true?”

My answer:

Oh boy.

First, never, never, NEVER pay a loan modification company for doing something best done by yourself.

The FTC in the last day came out with a new warning about these scam artists. The LA Times reported it this way,

“The frauds often involve companies with official-sounding names designed to make borrowers think they are using the Obama administration’s efforts to help modify or refinance 7 million to 9 million mortgages.

Officials say such operations almost always are fraudulent, and that help is available for free from government-approved housing counselors.

“These predatory scams callously rob Americans of their savings and potentially their homes,” Treasury Secretary Timothy Geithner said. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”

The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements. The agency also said it filed three new complaints against Northridge, Calif.-based Federal Loan Modification Law Center LLP, Newport Beach, Calif.-based Bailout.hud-gov.us, and Clearwater, Fla.-based Home Assure LLC, and the operators of those companies.

The FTC last month filed cases against two other companies: Hope Now Modifications LLC and New Hope Modifications LLC.”

So Racheal I hope you haven’t paid these people or take their advise.

Their advise about not paying your mortgage is contrary to the new Obama Plan which finally allowed servicers to accept modifications on loans not yet in default. All you need to show now is “hardship”. Read more about that in my post - Makinghomeaffordable.gov Website Review

Their advise that your credit will be hurt by not paying your mortgage as agreed is true. But everyone knows that. There contention that your credit will be restored after modification is an outright lie. They can’t guarantee that and it is contrary to credit reporting standards NOT to report derogatory credit histories or to falsify them.

You can and should negotiate directly with your servicer to obtain a loan modification. And of course, that is free.

Thanks for the question!

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