The Federal Trade Commission has proposed a new rule that would aid homeowners looking to modify their mortgages from falling victim to fraudulent modification services by banning some services from charging up-front fees.
The proposed rule comes after the FTC has handled 28 different cases during the financial crisis involving fraudulent or deceptive companies that claimed to help modify mortgages and accepted fees before not following through on their promises.
The proposed safeguards that would be put in place to defend homeowners looking to adjust their mortgages would prevent any loan modification businesses from taking money up-front. They would also not allow the businesses to urge customers to cut off communications with their lenders or mortgage servicers or mislead them on details of their mortgage type.
"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. "The proposed rule would outlaw up-front fees so companies can’t take the money and run."
The laws would only apply to for-profit companies and not create new laws that would affect most bankruptcy lawyers as well as companies that own and/or service mortgage loans.
