FTC Proposes Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees
The Federal Trade Commission moved to protect distressed homeowners from the promoters of bogus foreclosure rescue and mortgage modification services by proposing a new rule that would forbid companies to charge up-front for these services. Instead, companies could only collect payment after providing services.
“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.”
According to the Notice of Proposed Rulemaking announced today, historic levels of consumer debt, increased unemployment, and an unprecedented downturn in the housing and mortgage markets have contributed to high rates of mortgage loan delinquency and foreclosure. This mortgage crisis has launched an industry of companies purporting, for a fee, to obtain mortgage loan modifications or other relief for consumers facing foreclosure. The FTC has brought 28 cases in this area, and state and federal law enforcement partners have brought hundreds more. Generally these cases charged that companies do not provide the services they promise and that they misrepresent their affiliation with the government and government housing assistance programs, including the Making Home Affordable Program.
The FTC notice seeks public input, particularly from attorneys and other professionals, on a proposed rule that would require mortgage relief companies to make good on their promised results before charging or accepting payment from consumers. Under the proposed rule, companies could not be paid until they had a documented offer from a mortgage lender or servicer that lives up to the promises they have made.
“Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered,” Treasury Secretary Timothy Geithner said. “I commend the FTC for proposing a strong set of safeguards to protect consumers from these predatory practices.”
The proposed rule also would bar providers from telling consumers to stop communicating with their lenders or mortgage servicers, and from misleading them about key facts such as:
• The likelihood of getting the results they want, and how long it will take.
• Their affiliation with public or private entities.
• Payment and other existing mortgage obligations.
• Refund and cancellation policies.
In addition, the proposed rule would require providers to tell consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the consumer’s lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.
The proposed rules would apply to for-profit companies that, in exchange for a fee, offer to work with lenders and servicers on behalf of consumers to modify the terms of mortgage loans or to take other steps to avoid foreclosure on those loans. The proposed rules generally exempt entities that own or service mortgage loans. Attorneys would have a limited exemption from the proposed advance fee ban if they represent consumers in a bankruptcy or other legal proceeding.
The FTC rulemaking proceeding is required by legislation secured in 2009 by Senator Byron Dorgan and Chairman Jay Rockefeller. Any proposed rule would apply only to entities within the FTC’s jurisdiction under the FTC Act, which excludes, among others, banks, thrifts, and federal credit unions. As the first step in the rulemaking process, on June 1, 2009, the FTC issued an Advance Notice of Proposed Rulemaking seeking comment on the practices of for-profit mortgage relief services providers.
By a 4-0 vote, the Commission authorized publication in the Federal Register of the Notice of Proposed Rulemaking, which has a 45-day public comment period ending March 29, 2010. Full instructions for submitting comments are found in the Address section of the Notice.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.
MEDIA CONTACT:
Office of Public Affairs
202-326-2180
STAFF CONTACT:
Laura Sullivan or Evan Zullow
Bureau of Consumer Protection
202-326-3224
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Source: FTC
I was glad to hear about this. I work with the program presently and we do modifications for borrowers with no fees to them. It is very disturbing to know that some of our borrowers are paying other companies to do what we can do for them if only they would contact us. This ruling would be a good thing – borrowers are already in trouble and for companies to prey on that fact is disgusting.
As an attorney in Florida this is good news. When will the new law take effect?
I agree there needs to be regulation in this industry. There are way too many scam artists out there preying on the distressed homeowner. However, there are many companies doing good work. Know what the lender requirements are to get the mod, and work in the best interest of the client. Banks say they will work with a client directly. We all know that this never happens, and when it does it is in the lender’s best interest. This total ban is a lazy approach on behalf of the government. There should be regulations in place, but a complete ban on fees will wipe out everyone. A company can not be expected to carry all costs for months – overhead, labor, time, etc. only to have a “chance” of getting paid at the end. These homeowners have not been paying their mortgage for months, and sometimes years. Once a company gets a client the modification, the client will then be expected to pay the mortgage payments. This, in most cases will leave no money for the firm to collect once they completed all services. Yes, regulations need to be in place. Solutions, answers, guidelines. Not a “blanket” ban on fees. For example, payments to a 3rd party, unaffiliated escrow agent to be held until the service is complete. At least this would ensure the firm will have the money there once they do complete service. With this ban, it leaves no protections whatsoever for the legit firm. The escrow is just one example of a solution. There should also be regulations in the industry so the client can be assured they are dealing with a company with expertise in this area, and follows all guidelines. The scam artists will still continue to scam homeowners as many states currently have the no “upfront” fee ban. More needs to be done on the part of government in this area. Although this may appear good from an outsider looking in, it is completely anti-business and anti-American. We operate a firm and by all counts have completed more modifications than any government or non-profit agency we have seen documented results for. However, without collecting a small fee to cover our costs only, we would be out of business. I believe if these regulations were in place and government knew who was in the business and what they were doing, then a small fee such as $200 to $300 is more than reasonable to ask of a homeowner when the firm is expected to wait several months for the rest of the money. More needs to be done. This is not the answer, and this is not in the best interest of the homeowner, lender or legitimate firm doing the services……
Look, just regulate this business. That is all that needs to be done. Let the consumer decide how much they will pay to set the market price. The public is now seeing how banks are lying about “losing documents”, etc.
Freddie Mac contracts with their own loan modification company called Titanium Solutions based in Utah. This company contacts real estate agents to sit down with a deliquent homeowner and discuss whether a loan modification or a short sale is the best option. The real estate agent can only make commission if a short sale is completed and they automatically have the listing. If Freddie Mac is setting this up are we do believe that the banks really care about completing loan modifications? it is all political fluff.
This might sound good to some but many homeowners need help with the process can’t do it themselves so they need to hire someone to help them and you can’t run a business hoping people will pay you when the service is done.
My friend started a loan modification company in IL and he didn’t charge upfront – 50% of the people wouldn’t pay him when the service was done because they didn’t have the money or just didn’t want to pay so he loses.
The industry should be regulated by requiring a license or something but not be put out of business because of bad apples.
Some people think that it should be a free service but I think when someone hasn’t been paying there mortgage payment for months then gets $500-$700 shaved off the payment they should have to pay.
This whole idea of the “poor homeowner” needs to stop – if I have a a stroke and get taken to the emergency room my bill is going to be 50k – are they taking advantage of poor sick me? No, they are there to help but expect to get paid well for helping me when I needed it most.
Many good points! This is a foolish move. The legitimate companies that are active, now have to close down because the government can’t control the amount of con artists in the field. A good chunk of my clients have attempted to work with HOPE and these other “non-profits.” Well, nine months down the road, no one is contacting them and they’re stuck. I’m pretty sure I can find some information on-line to instruct me on how to remove my appendix, and I’m also pretty sure I can find a nice free hospital to help me, but I’d rather use my very expensive insurance to make sure I get the type of service I am comfortable with. And for all the people who aren’t going to pay upon completion? Who’s going to regulate that? Will the FTC protect the business owners? Hell no. The great idea is to close down massive amounts revenue generating companies when out economy is at it’s worst? That type of brilliant thinking put us in this hole. Bunch of idiots.
I’ve been scammed by iModification Loan Services in Reno, NV. They seem to believe that they can take my money, not achieve a modification, and keep most of my money for allegedly providing a service for me. What a ripoff. I hope this new ruling puts them out of business.
America needs to realize that anytime liberal, left-wing “progressive”, socialists like Carter and his administration puts forth into motion socialistIC-based programs (like FANNIE MAE and FREDDIE MAC), and FORCE Banks to lend to everyone with a heartbeat, BAD THINGS WILL HAPPEN !
What the public doesn’t know, is that EVERY SINGLE MORTGAGE-LENDING BANK provides a “financial” incentive to the loan officers or loan agents, in order to push or sell some of the banks “NEW & INNOVATIVE” mortgage programs. And they’re VERY ENTICING I might add. Loan Agents and Originators have at least 50% control of the interest rate recieved.
For example, let’s say the banks come in with an average interest rate of 4.25%, but since the bank is offering an additional pay-out amount to the agent or originator for an interest rate “adjustment”, the focus of the agent or originator changes from the client interests into his or her own in the form of commissions. Personally, I never believed in “pushing” any mortgage or refinancing loan on ANY of my clients to make some extra money.
this is good news now enforce it
the government should go after the banks