The FTC has proposed a new rule that would ban upfront fees for loan modification services nationwide.
Per the rule, companies offering such services would have to wait until after receiving a documented offer from the loan servicer or mortgage lender to collect payment.
“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” said FTC Chairman Jon Leibowitz, in a press release.
“The proposed rule would outlaw up-front fees so companies can’t take the money and run.”
Additionally, the rule would ban providers from telling consumers to stop communicating with their lenders or loan servicers, advice that could land a borrower in even more trouble.
And to stop sharing misleading facts regarding the the cost, refund, and cancellation policy, the chances of getting a loan modification, and how long one might take.
Loan modification providers would also need to disclose the total price of the service, that they’re “for-profit” businesses unaffiliated with the government or the consumer’s lender/servicer, and that there is no guarantee the lender will agree to modify the loan.
Of course, the proposed rule generally exempts entities that own or service mortgage loans, and lawyers would have limited exemption if they represent consumers in a bankruptcy or other legal proceeding (always loopholes).
Upfront fees are already banned in 20 states, most notably California and New York.
Take a look at the worst loan modification companies, per MFI-Mod Squad, and always do your due diligence before working with anyone.
The FTC proposal has a 45-day public comment period ending March 29, 2010; this may have been helpful a year ago…