FTC Wants To Ban Mortgage Mod Services From Charging Up-Front Fees

To combat mortgage relief fraud, the FTC would like to make a new rule that would ban mortgage modification services from charging up-front fees. “Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said in a statement. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.” Indeed, there are some shady operators in this area and consumers need to beware.

Here’s a video from the FTC on avoiding foreclosure rescue scams. The big pieces of advice are to watch out for companies who 1) Make any guarantees 2) Ask for money up-front or 3) Tell you to make your mortgage payment to them.

FTC Proposes Rule That Would Bar Mortgage Relief Companies From Charging Up-Front Fees [FTC.gov]

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  1. Quibbs0 says:

    Isn’t it fairly common to have to pay for the appraisal fee upfront when refinancing?

    • Loias supports harsher punishments against corporations says:

      Government needs to stay out of my business. If I want to get scammed by a mortgage lender, I should be allowed to. Smaller government!

      Funny how smaller government advocates never mention all the good legislation that comes out of government oversight, like this one.

      • Loias supports harsher punishments against corporations says:

        Whoops, not meant to be over here!

      • huadpe says:

        Actually they passed a bill like this in California and it hasn’t helped much. The scam companies just lie and break the law, and legit lawyers are prevented from representing people because they can’t get paid.

    • Me - now with more humidity says:

      This isn’t referring to appraisal fees. These companies often charge a fee for service, then don’t do squat.

      • lucky13 says:

        Good point – there is a big difference between a loan modification on a mortgage and refinancing a mortgage!

    • lucky13 says:

      Typically you have to pay the appraisor separately but all other fees are included in the refi – which is to say they can charge any amount they want to for those fees. At least, that was the policy in Colorado in the last 10 years or so.

  2. Loias supports harsher punishments against corporations says:

    Government needs to stay out of my business. If I want to get scammed by a mortgage lender, I should be allowed to. Smaller government!

    Funny how smaller government advocates never mention all the good legislation that comes out of government oversight, like this one.

  3. obits3 says:

    “Tell you to make your mortgage payment to them.”

    BIG RED FLAG!!!!!!!!!!!!!!

  4. Lexasaurus says:

    “Indeed, there are some shady operators in this area and consumers need to beware.” Yes, they are called Bank of America, Wells Fargo, Washington Mutual….

    Oh, wait. Those guys are too big to be accused of fraud and bad faith. In the US, we only go after the criminals who are too small to make ginormous campaign contributions. Remember, if you take $300 dollars from someone and fail to deliver on the loan modification, you’re a criminal. If you take billions from taxpayers and do the same thing, you’re an upstanding citizen who deserves an income tax break.

  5. Tom Foolery says:

    To my mind, even most of the legitimate companies don’t do much that you can’t do yourself.

    • RvLeshrac says:

      You can also do neurosurgery yourself. It really isn’t that difficult.

      However, you’re probably better off with someone who has experience in the field.

  6. Daemon Xar says:

    Um . . . the linked press release came out in Feburary. Is there something new going on now?

  7. vicissitude says:

    The major problem with mortgage modification companies, is that they don’t get paid unless the house goes into foreclosure. Actual loan modifications they don’t get paid for. (NOT to be confused with refinancing.) The system is completely messed up and with the ‘freedom from regulation’ crowd loves it that way. It’s back to the wild west days and I’m pretty sure that’s not a good thing…

  8. gman863 says:

    It has always amazed me how banks screw both homeowners and themselves by playing hardball on foreclosures.

    When a bank forecloses, they often net half or less of the outstanding loan balance due to legal fees, real estate commissions, the final selling price at auction and the fact many people facing foreclosure trash the house before leaving it.

    If a person is able to pay a majority of the monthly payment on a regular basis, it would work in the lender’s favor to look at other options such as reducing or deferring interest charges for a period of time. Although this reduces the lender’s profit and kills the borrower’s credit score, it would benefit the bank by cutting the huge losses on a foreclosure. If this method prevented even 30-40% of foreclosures, lenders would have better balance sheets and the prices of homes would stabilize making foreclosures of last resort more valuable when sold.

    Yes, I’ve heard about some government program that’s supposed to offer this option. I’ve also heard of Bigfoot and the Loch Ness Monster. In all three cases, I’ll believe it when I see it.

  9. varro says:

    Mortgage modification companies are banned in Oregon and California from taking money up front, although too late to keep a bunch of people from being scammed by people who took their money, then wouldn’t return their calls.

  10. NOXIUS says:

    Every one of these places are scam artists, and I really don’t understand how they are aloud to get away with this?

  11. Bang Uchiha says:

    I got my mortgage cut in half, from an adjustable interest only to a 2% principle included loan. And had to try 3 times, denied twice and wait seven months, and even become late a few months (to show hardship) but not more than 3-4months or they will start the foreclosure proceedings.

    Read reviews and ask to speak to past clients, go by referrals if friends know any mod companies that are legit. Ask for copies of paper work on complete modifications they have done: 1. Original Mortgage Statement of another client they had, 2. The Trial Modification paper work, 3.the Finalized Modification 4. And the New Mortgage Statement…if they had real clients and success they will have all of this.

    Only try to get a loan mod company until after you have tried to modify with your lender, even though it is harder, if you are patient and do the paperwork yourself and document times and dates and names of people you speak with at the bank you can get it modified yourself. Some mortgages with Chase or Capital One or even with Litton are easier and are fair to work with on your own. Compared to BofA or Wells Fargo who play hardball. Call multiple times if need be and always get fax confirmations and referance numbers.

    They will ask for paystubs etc several times, the faster the completed packages/info is sent the faster everything will go. They usually will try to deny or give you a bad modification, resubmit and say it will not help your situation. They will offer a lower one eventually which will be the government mod and not the “in-house mod” (they try to make money by not giving you the govt mod.) They will also try to hurry/rush you to take the in-house mod to sign and fax back. Dont do it. Wait and communicate with them to get the govt mod. and they will ask you for updated paystubs again.

    A lot of back and forth, but it is worth it.

    If you cant do it, research a lot to find a trustworthy loan auditor/processor for under $2k

    Goodluck