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The Federal Trade Commission moved to protect distressed homeowners from bogus foreclosure rescue and mortgage modification services...

FTC Bans Up-front Fees for Mortgage Modification

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.”

7 comments

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!

  2. I found your site on Google and read a few of your other entires. Nice Stuff. I’m looking forward to reading more from you.

  3. This article is good as far as it goes. What has to happen for the proposed rule to take effect? When would it go into effect? The headline makes the rule sound like it is a “done deal,” but the rest of the article addresses the “proposed” rule. Thank you.

  4. Mr. Bolt:

    Thanks for your question. Sorry for getting wrapped un in Washginton regualtory language and not making the process clear.

    The proposed rule is open to public comments until March 29 after which it will take effect. The FTC voted unanimously for the rule and for all practical purposes, it is a done deal.

  5. Appreciate the reply! Thanks.

  6. Stop Foreclosure – Help to Avoid Foreclosure, Loan Modification Help

  7. We’ve been dealing with the loan mod nrgitmahe for 13 months. Chase bank, who sucks so bad, told us they would give us a permanent loan modification after we made 3 trial mod payments; the loan mod never happened. They say we they want to help but it’s all just a bogus act of good faith. They string you along so that you keep sending your money to them. We’ve never, ever been screwed with like we have with Chase.

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