The Federal Trade Commission moved to protect distressed homeowners from bogus foreclosure rescue and mortgage modification services by proposing a new rule that would forbid companies to charge for these services up-front. 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.”
The FTC said the 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.
The commission accused two California-based companies of collecting at least $3.3 million from Spanish-speaking homeowners without following through on promises to help them negotiate loan modifications with lenders to avoid foreclosure.
In September, it sued the Nation’s Housing Modification Center and its principals who allegedly violated the FTC Act and the FTC’s Telemarketing Sales Rule by misrepresenting themselves as a federal government agency or affiliate and falsely claiming that, in return for a $3,000 fee — half due up-front and half due two weeks later — they would obtain mortgage modifications that would make consumers’ loan payments substantially more affordable in virtually every instance.
The FTC also brought charges last year against Infinity Group Services and its president, charging them with violating the FTC Act by falsely representing that they would obtain a loan modification in all, or virtually all, instances; that they would give full refunds if they failed to do so; and that they would obtain loan refinancing for an up-front fee of $995.
The proposed rule 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.”