The Massachusetts Division of Banks (DOB) has forbidden mortgage professionals from charging fees to help distressed borrowers with loan modifications – and industry leaders couldn’t be happier.
With mortgage banking still recovering from the fallout of the subprime era, loan modification scams seemed to be a new way for less scrupulous brokers to drag the industry back through the mud.
But with the DOB’s black-and-white ruling leaving little leeway for convenient confusion, a second public relations nightmare seems to have been avoided.
“I thought immediately that this was a black eye on our industry,” said Amy Tierce, president of New England Fairway Mortgage. “I do not think our industry should be profiting, or perceived to be profiting, on something that we probably got people into in the first place. It’s just like another drink at the well.”
In March, the Federal Treasury Department released guidelines for loan modifications on mortgages backed by Fannie Mae and Freddie Mac. The program gives a $1,000 incentive per loan for servicers who successfully modify their failing mortgages, and $1,000 per year, for up to five years, for borrowers who successfully pay their mortgages under the new terms.
Steering Clear Of Schemers
There was no provision, however, for mortgage brokers who help clients contact and communicate with servicers. According to Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff, this led an “overly aggressive sales culture” to start selling modifications as a product for servicers and borrowers, with built-in fees for brokers.
“In an industry just getting out of the reputational damage of a subprime market, the last thing in the world we need is to get involved in these kind schemes,” Cuff said. “Particularly if you originated the loan, you ought to be working to help the customers cure their loan.”
Cuff met with the DOB earlier this month to suggest a clear statement on just what was in and out-of-bounds – he received an answer in a letter last week.
‘We Like The Clarity’
Brian Koss, managing director of The Mortgage Network in Danvers, said he received pitches from some familiar villains looking to profit from modifications.
“I did see examples, and we were solicited by folks who were out there who were actually selling that business model,” Koss said. “The same people selling subprime data lists turned around and were selling subprime foreclosure lists. They were ‘ABC Mortgage’ types of places: generic, out-of-state firms approaching it with telemarketing centers.”
Koss said while the federal guidelines for loan modifications declared there was no room for fees, the DOB clarified exactly what is illegal, and why.
“The state is just jumping on and spiking what the feds already served up,” Koss said. “But we like the clarity.”
Fortunately, it seems Massachusetts has been spared these types of scams in the interim between the federal guidelines released in early March and the DOB’s April 27 letter to the MMBA.
“Often, the horse has already gotten out of the barn with something like this, but in this case, the horse is still in the barn,” said Tierce. “I think a lot of people have been smart, stood back, and said, ‘I don’t know about this.’”
