Mortgage Modifications - FTC Issues New Rule To Protect Homeowners From Scams

Mortgage Modifications - FTC Issues New Rule To Protect Homeowners From Scams

Mortgage Modifications - FTC Issues New Rule To Protect Homeowners From Scams

Financially distressed homeowners will soon have protection from unscrupulous loan modification companies by way of a new rule set down by the Federal Trade Commission. The new regulation stipulates that loan modification companies cannot charge any fees before a homeowner has a settlement in writing from their mortgage holder.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” said FTC Chairman Jon Leibowitz. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

The FTC was compelled to intervene due to the prevalence of fraudulent business entities offering, for a fee, to represent and negotiate a loan modification for the homeowner. Numerous of these companies allege to be associated with government housing programs to add legitimacy to their claims. To date, the FTC have 30 ongoing prosecutions against these operations with state and federal enforcement agencies bringing hundreds more.

Major aspects of the new rule include an advance fee ban, full disclosure of the process by the mortgage modification companies, and a stop on all false or misleading claims.

No fee can be charged unless a written offer from the mortgage holder is agreed to and signed by the homeowner. Also, fees can only be charged the homeowner if he/she agrees to the written offer.

Companies must now provide full disclosure about their services such as listing whether or not they are partnered with any branch of government and if they tell a client to stop all mortgage payments they must also warn that non-payment can result in the forfeiture of their home and major peril to their credit score.

Misleading or outright false claims must also cease under the new rule. Any business that counsels homeowners to stop communicating with their lenders without suffering consequences will be in violation of the rule.

The only exception in general terms to this new FTC rule will be attorney services due to the nature of the legal field.

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