A new piece of legislation from California Assemblyman Pedro Nava (D-Santa Barbara) aims to crack down on loan modification firms, specifically those that ask for upfront fees to perform their duties.
The bill, AB 764, would prohibit any person from collecting advance fees in connection with the modification of a mortgage loan.
This is similar to taking out a mortgage, where the loan originator isn’t paid unless the loan successfully closes.
You could argue that homeowners shouldn’t have to pay unless the loan modification is actually successful; though the loan mod companies could counter that their providing a service with no guarantee.
The bill would also prohibit loan mod advertisements that use words, letters, symbols, etc that are similar to those used by a governmental agency or nonprofit entity.
Back in March, two loan modification companies that sounded eerily similar to the government Hope Now alliance, “Hope Now Modifications” and “New Hope Modifications,” were charged by the FTC for violating federal laws.
Additionally, AB 764 would increase related fines from $10,000 to $20,000 for individuals, and from $50,000 to $60,000 for a corporation; those found guilty of breaking the would-be law could be punished with up to a year in county jail.
The LA Times cited a story where a San Francisco woman paid an Irvine, CA-based loan modification firm $3,000 upfront, only to learn that she faced eviction after her home was sold.
California Governor Arnold Schwarzenegger has until October 12 to determine the fate of the bill.