FTC says no more upfront loan modification fees
The Federal Trade Commission has proposed a new rule that would prohibit third parties, including loan modification specialists and loss mitigation attorneys, from collecting payment for foreclosure prevention services until after they obtain a documented offer from a lender or servicer for a modification or other form of mortgage relief. “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.” The FTC has brought 28 cases against companies suspected of foreclosure rescue and mortgage modification scams, and state and federal law enforcement partners have brought hundreds more. According to the agency, 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. “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. It would also require them to disclose to consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.
FTC is gathering comments from various groups of providers. They expect comments especially from attorneys performing these services as they do not normally work on contingent pay plans.