Housing Counselor Certification (HUD) Practice Exam

Which unsolicited offer to avoid foreclosure might indicate a scam?

1. A company offering legal filings

2. A firm that provides loan consolidation

3. A company offering "government-approved" loan modifications

4. An organization asking for upfront fees

The correct answer is: A company offering "government-approved" loan modifications

An organization offering "government-approved" loan modifications is indicative of a potential scam because legitimate government programs typically do not require intermediary companies to act on behalf of the homeowner. The U.S. government does have programs that assist with loan modifications, but these services are generally free or provided directly through the mortgage company or official government channels. When a company claims to offer “government-approved” modifications, it can exploit the homeowner’s distress and create the false impression of endorsement or affiliation with government services. While other options may raise concerns, they don't inherently signal a scam in the same manner. For example, companies offering legal filings or loan consolidation services may have legitimate operations, but they must be scrutinized for transparency and legitimacy. An organization asking for upfront fees can also suggest a red flag as it may indicate a tendency for exploitation, depending on the service provided. However, the phrasing of "government-approved" suggests a level of authority and legitimacy that could mislead homeowners into believing they are receiving a secure and recognized service, making it particularly problematic and scammable.