At a time when some homeowners are struggling to pay their mortgages, so-called mortgage relief services have been more aggressive in offering loan modification help. Homeowners are warned of the pitfalls of these offers and a consumer alert was issued to make homeowners aware of new protections from the Federal Trade Commission.
Mortgage “rescue” services or load modification services often promise to deliver lower monthly payments and lower interest rates, aid in short sales, and offer other relief from foreclosure. However, these services also typically require an upfront fee from a homeowner prior to performing any services. That is the catch.
In most cases, the offers of assistance are empty promises given only to extract the advance fee. Some services offer “guaranteed” results and full refunds to disappointed customers, but those promises are not often honored. Some services claim strong relationships with the servicing and lending community and tout past successes in rescuing consumers from foreclosure. Others suggest an affiliation with federal government programs. Most of these claims are false.
These scams are promoted through direct contact with distressed homeowners, either by phone, a personal visit, or a card or flyer at the door. Homeowners are told to stop contact with their lenders, credit counselors, and lawyers, and let the “rescuer” handle the details. This cuts off the homeowner from legitimate opportunities to achieve a financial solution.
The Federal Trade Commission (FTC) has issued a new rule that bans the acceptance of an advance fee by mortgage relief/loan modification services until the homeowner has a written offer from their lender or servicer that they decide is acceptable. The Mortgage Assistance Relief Services (MARS) Rule is designed to protect homeowner from mortgage relief scams that have persisted during the current mortgage crisis.
Most parts of the rule went into effect on December 29, 2010. The full rule will be implemented on January 31, 2011.
According to the MARS Rule, mortgage relief companies must disclose that they are not associated with the government and that their services have not been approved by the government or a consumer’s lender; that the lender may not agree to change loan terms; and that consumers could lose their homes or damage their credit ratings if told to stop paying their mortgage.
The MARS Rule will also prohibit several common advertising tactics used by mortgage relief services and requires companies to have reliable evidence to support any claims about the benefits or effectiveness of the services they provide.
Arkansas Attorney General Dustin McDaniel issued a consumer alert to advise Arkansas homeowners of the new laws. “The good news for homeowners facing foreclosure is that legitimate avenues for relief exist,” McDaniel said. “If a homeowner is having difficulty keeping up with mortgage payments, that homeowner should contact his or her lender to negotiate a modified payment plan. All lenders and servicers have a legal obligation to offer remediation services.”