On February 4, 2010, the Federal Trade Commission (FTC) proposed its intent to regulate loan modification, foreclosure rescue and other mortgage assistance relief services (MARS).
The FTC wants to prohibit MARS providers from collecting fees in advance of delivering mortgage relief services, eliminate misrepresentations in marketing (for example, guaranteeing a particular mortgage rate or payment) and require providers to disclose exactly what service they provide and the terms under which they provide it.
Key Areas of Loan Modification Reform
The FTC's proposed changes cover illegal misrepresentations, a ban on the collection of advance fees, new required disclosures, liability and record keeping and compliance.
1. Prohibited Representations
The following will be held to be deceptive or unfair:
- Instructing homeowners to stop communicating with their mortgage lenders or loan servicers;
- Deliberately understating the amount of time it takes to get results;
- Falsely implying a relationship with government agencies, non-profit housing counselors, mortgage lenders, or loan servicers;
- Claiming the ability to relieve homeowners of their mortgage payment or obligation;
- Misstating their refund and cancellation policies.
2. No Collecting Advance Mortgage Modification Fees
MARS providers would no longer be allowed to charge or collect advance payments until they deliver on their promises, providing a written offer from the mortgage lender to modify mortgage terms, or otherwise provide mortgage relief. This should take care of opportunists who take upfront fees and make a few desultory phone calls that don't accomplish anything, or worse, leave town with a homeowner's payments.
3. Required Upfront Disclosures
If the FTC rules are finalized, MARS companies must disclose:
- That they are for-profit businesses, and not endorsed by government agencies or mortgage lenders;
- The likelihood of getting the results the consumer wants;
- How long it will take;
- Refund and cancellation policies;
- That the borrower's lender may not agree to modify their mortgage.
The FTC is also considering other disclosures, such as the historical performance of MARS providers.
The proposed rule also nails anyone who works with or refers MARS providers who are found to be engaging in unfair practices if they "know or consciously avoid knowing that the provider is engaged in any act or practice that violates the rule." The proposed rule lists advertising services, marketing support, payment processing, telemarketing and lead generation as activities that might incur liability.
5. Record Keeping
The proposed rule would require MARS providers to keep records for 24 months. Records would include:
- All contracts between providers and mortgage relief customers;
- Copies of written communications between the provider and the consumer;
- Consumer files containing the names, telephone numbers, amounts collected, and services purchased;
- Copies of sales scripts, training manuals, and other marketing materials;
- Copies of documents and disclosures required to be given to the homeowner.
Other Practices and Enforcement
MARS providers would also be required to implement programs to monitor and enforce employee and independent contractor compliance, and to "promptly and fully" investigate any consumer complaints. That monitoring must also be documented. Any attempt by the MARS companies to obtain a waiver of provisions from their clients would also be considered a rule violation.
The FTC plans on investigating violations, and could fine companies up to $16,000 per incidence. States may also bring civil actions in federal district court to seek civil penalties and other relief.
What This Means for You Today
While these rules is not yet in effect, there is no reason why homeowners seeking mortgage modification help shouldn't be their own FTC. Don't pay a "provider" for nothing more than a sales pitch. You can get help for free. Get the terms of your assistance in writing, and don't work with anyone who wants to be paid before they show you any results. Avoid companies who promise specific rates or payment reductions, who advise you to walk away from your loan, or who want you to cut off contact with your mortgage lender or servicer. The only exception to these rules might be for a bankruptcy attorney who is advising you about a modification as part of a bankruptcy filing. Those attorneys do get paid in advance, and may have you stop communicating with the mortgage lender directly.
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte.