Campaign against loan modification scams launches in L.A.

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A national housing nonprofit has launched an education campaign in Southern California to combat fraud targeting homeowners in peril of foreclosure.

Loan modification scams are on the rise, charging troubled homeowners thousands of dollars up front for mediation and counseling services that are provided free of charge by federally approved nonprofits, Eileen Fitzgerald, chief operating officer of Washington-based NeighborWorks America, said at a news conference this morning at Los Angeles City Hall. The nonprofit is starting its yearlong national education effort in Southern California because the region has been hit particularly hard by the foreclosure crisis, she said.

Troubled borrowers often pay fees ranging from $1,500 to $3,000 to loan modification companies, Fitzgerald said. The companies, in turn, promise to negotiate with lenders on the homeowner’s behalf. In some cases the companies promise that loan amounts will be modified, a result that is difficult and rare, she said.

Aside from the money spent on unscrupulous companies, those facing foreclosure can also lose precious months that could be better spent with federally approved nonprofit counselors who do not charge for their services, Fitzgerald said.

Poorly informed homeowners desperate for help turn to loan modification consultants -- who are often attorneys, mortgage brokers or real estate agents -- who advertise on radio, television and in print.

“They are very good marketers,” Fitzgerald said.

This month, California Atty. Gen. Jerry Brown’s office reported having received more than 2,500 complaints against loan modification consultants and their businesses this year, up from fewer than 200 in 2008.

Seniors, Latinos, African Americans and Asian Americans have been particularly victimized and will be a focus of the education campaign, Fitzgerald said.

For the next three weeks, community organizers and volunteers working with NeighborWorks and its local affiliate, Los Angeles Neighborhood Housing Services, will be distributing marketing materials to people and warning companies about loan modification fraud. The first stop today was the Sun Valley Workforce Center in Sun Valley.

“Many of these families believe they have nowhere to turn, nowhere to go for help or assistance,” Los Angeles Mayor Antonio Villaraigosa said at the news conference.

In April, the Los Angeles City Council passed an ordinance imposing penalties on companies that charge for such services.

Zulma Navarrete said that over the last year she had bad experiences with two different loan modification companies.

The 36-year-old native of Guatemala, speaking in Spanish at the news conference, said the first company charged her about $2,000 and the second, a law firm, charged her $3,495. Neither has gotten the lender to reduce the $2,900 monthly payment on her three-bedroom Huntington Park home. Navarrete said she got her money back from the first company but not from the law firm.

“I was robbed,” she said. “And I want my money returned.”

-- Alejandro Lazo