FTC Pushes For Tighter Rules On Faux Mod Providers

The Federal Trade Commission (FTC) has proposed a new rule that would forbid companies from charging up-front fees for foreclosure prevention services. Instead, the FTC wants companies to only be able to 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 says.

According to the Notice of Proposed Rulemaking announced Thursday, the foreclosure 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 the 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.

Treasury Secretary Tim Geithner commends the FTC for its proposal.

"Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered," Geithner says.

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; as well as 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.

SOURCE: Federal Trade Commission


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