The Federal Trade Commission has issued a new rule banning the collection of fees by mortgage loan modification and other foreclosure rescue service providers until homeowners receive a written offer from their lender or servicer “that they decide is acceptable”.
The FTC Mortgage Assistance Relief Services rule is designed not simply to help mediate a more suitable workout outcome but also to help minimize fraud.
The rule’s stated goal is “to protect distressed homeowners from mortgage relief scams that have sprung up during the crisis.”
FTC officials expect the interdependence between the service fee and customer satisfaction will create a barrier for scammers.
The FTC said the ban caters to industry and public concerns about bogus operations and fraudsters who for a fee claim to negotiate a modification, short sale, deed-in lieu or other option with the lender or servicer and also pretend to be affiliated with the government and its housing assistance programs.
The new rule was triggered by an uptick in fraud cases. According to the FTC, in addition to hundreds of cases brought to the FTC’s attention and prosecuted by state and federal law enforcement partners, the FTC alone has brought over 30 cases against such providers in the recent past.
Industry and FTC data show that fraudulent mortgage relief service providers “have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results.”
