Thanks the Feds for Opening Doors to Mortgage Modification Scams


Sigh—I just heard another story of a mortgage modification scam.

This got me thinking: Why is it that when the government tries to solve one problem, it just creates another problem?

After falling over themselves to do something—anything!—to stave off foreclosures, politicians came up with mortgage modification programs and basically forced banks to modify loans for struggling homeowners by reducing interest rates and cutting payments.


Slim chance.

The long and short of it is this: Mortgage modification programs overwhelmingly benefit the individuals who are not following the rules. Sure, their credit score might take a toll, but as I discuss in 7 Steps to a 720 Credit Score (Philip Tirone, 2008), they can increase their scores to 720 in just two short years!



In other words, these programs are just prolonging inevitable foreclosures and facts of bankruptcy.

We are bound to see many, many more foreclosures as the modification program continues to deteriorate.

So let’s summarize the mortgage modification program: It is unethical, and it is failing. And guess what? To make the problem worse, the government’s rush to create a “solution” opened the doors to all sorts of loan modification scams.

Lo and behold! Government intervention created more problems! Who woulda thunk it?

The systemic problem with government intervention is that it almost always creates more problems, and the mortgage modification program is no exception.

 “This has not been a well-defined program from day one,” said TARP special inspector general Neil Barofsky of the government’s mortgage modification program, citing a giant “uptick” in scams targeted at struggling homeowners.

“Criminals speed on that type of confusion,” he said of the mass confusion regarding the rules of the mortgage modification program. Some shysters pretend to be affiliated with a bank or government affiliate, then they charge outrageously high fees, only to disappear with the homeowner’s money.

It’s a big problem, and one that arguably could have been stopped. If only the government had refused to intervene. If only politicians had let the market set the fair value of homes and rejected the notion that everyone should be a homeowner. If only they had let banks act in their best interest. If only politicians allowed people to learn lessons, especially when homeowners knew the score before they signed up to play the game...

… then maybe we wouldn’t have all these mortgage modification scams.


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