August 25, 2019

The FTC proposes to better regulate fraudulent mortgage modification firms

In response to the rise of fraudulent companies taking advantage of struggling homeowners, the Federal Trade Commission (FTC) is seeking limits on mortgage modification firms.

Due to reasons we all know – the high levels of consumer debt, increases in layoffs, and the extraordinary downturn in the housing and mortgage markets – there have been extremely high rates of mortgage loan delinquencies and foreclosures. This mortgage crisis has attracted an entire industry of companies that claim, for a fee, to obtain mortgage loan modifications or other types of relief for consumers that are facing foreclosure. The problem is these companies don’t deliver.

The FTC has proposed a regulation that would prohibit companies that promote foreclosure and mortgage modification programs from charging up-front fees. Rather, these companies can only be paid after providing the promised services. This would prevent the fraudulent companies from engaging in a “take the money and run” strategy since they could not be paid until they had a documented offer from a mortgage lender or servicer.

The proposed rule would also disallow providers from telling consumers to stop communicating with their lenders or mortgage servicers, and from misleading them on important information such as the probability of getting the results they want, the duration of time it will take, payment policies, etc. Providers must also disclose that they are for-profit businesses that cannot guarantee results, and that they are not approved by the government and the consumer’s lender.

The FTC has brought 28 cases forward, on top of the hundreds that state and federal law agencies have brought. These companies have been charged for not providing the services that they promised, and for misrepresenting an affiliation with government housing assistance programs.

It is important that homeowners facing foreclosure or struggling to make mortgage payments should not have to deal with fraudulent companies. Under an already difficult and taxing time, homeowners should be able to trust the companies that claim to look out for their best interests.

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