Subprime Brokers finds new business as loan fixers

It is very alarming to see that the very brokers who lent out subprime mortgages (that eventually caused countless foreclosures and fueled the economic meltdown) are back to business again, this time disguised as “loan fixers.”

In this article, the NY Times chronicle the new loan fixing business of Jack Soussanna, who used to be a mortgage broker, is now working for a loan modification company. They charge a upfront fee of almost $3500, they promise to negotiate with lenders to lower existing mortagages for subprime home owners. Other companies, like FedMod, are also disguising as loan fixers who actually used to sell subprime mortgages.

The problem, these loan modification companies are charging money for empty promises; they never actually deliver the promises they make. In fact, more than 650 complaints have been filed against FedMod alone. State and Federal authorities have started to deal with such companies for fraudulent business practices. For example, the California Dept of Real Estate have ordered 210 businesses to terminate loan modification businesses.

From this article, one can see that government regulation is evidently extremely significant. The Obama administration first established the Federal Loan Modification program in order to help people. However, with free market economy there will be ambitious, profit-maximizing companies who prey on the vulnerable, unsuspecting citizens.. The judicial system can help contain the fraudulent practices with lawsuits, but is that enough to stop these loan modification firms? Do we need some concrete government policies to stop them?