In an effort to prevent unethical mortgage modification companies from taking advantage of consumers, the Federal Trade Commission (FTC) has enacted a new rule to prohibit up-front consulting fees for residential mortgages.
The FTC felt they needed to protect consumers who have filed over 800 complaints nationally against mortgage modification companies.
The new rule takes effect on January 31, 2011, and prohibits mortgage modification companies from receiving fees before a loan modification has been negotiated and the consumer is satisfied with the outcome.
However, people in the industry are divided over the new rule.
While some agree with the FTC that this is a step forward in protecting struggling homeowners, others say it will put loan modification companies out of business.
Mortgage modification counselors argue that they need the money to keep their business alive since they have tremendous difficulty collecting payment once the loan modification has been negotiated.
Opponents of the new rules also contend that it was driven by banks.
Banks have little interest in helping struggling homeowners avoid foreclosure by lowering their interest rates and monthly payments.
Most banks have been unwilling to work with homeowners who do not have advocates.
The average homeowner does not have the expertise to negotiate a mortgage modification with the bank.
However, a reputable loan modification consultant does have that expertise.
They know the ins and outs of renegotiating a home loan and can be successful in getting consumers the help they need.
There are reputable loan modification consultants who are licensed and have never had a complaint filed against them.
In fact, most of the companies charged with unethical business practices were not licensed.
The Nevada Legislation will allow licensed mortgage modification companies to get paid in advance if they put the money in a trust account until the loan has been renegotiated and the client is satisfied.
Additionally, before a mortgage modification company can be licensed, it will be required to post surety bonds in the amount of $75,000 to $100,000.
Even with these requirements, it could be difficult for homeowners to recoup their money if the company goes out of business.
The only recourse for homeowners is to file a claim in small claims court.
If the homeowner wins their case, they must first try to get the defunct loan modification company to pay the judgment.
If they are unsuccessful, they can request that the bond company to pay the judgment.
However, the new FTC rules pose a major problem for reputable loan modification consultants.
Since the new rules says a client does not have to pay any fees until they are satisfied with the outcome, then can legally walk away without paying any fees, even if the consultant has been legitimately pursuing a loan modification on the homeowner's behalf.
While the intent may have been to protect consumers, the fallout may hinder those same consumers from getting the help they need.
The FTC felt they needed to protect consumers who have filed over 800 complaints nationally against mortgage modification companies.
The new rule takes effect on January 31, 2011, and prohibits mortgage modification companies from receiving fees before a loan modification has been negotiated and the consumer is satisfied with the outcome.
However, people in the industry are divided over the new rule.
While some agree with the FTC that this is a step forward in protecting struggling homeowners, others say it will put loan modification companies out of business.
Mortgage modification counselors argue that they need the money to keep their business alive since they have tremendous difficulty collecting payment once the loan modification has been negotiated.
Opponents of the new rules also contend that it was driven by banks.
Banks have little interest in helping struggling homeowners avoid foreclosure by lowering their interest rates and monthly payments.
Most banks have been unwilling to work with homeowners who do not have advocates.
The average homeowner does not have the expertise to negotiate a mortgage modification with the bank.
However, a reputable loan modification consultant does have that expertise.
They know the ins and outs of renegotiating a home loan and can be successful in getting consumers the help they need.
There are reputable loan modification consultants who are licensed and have never had a complaint filed against them.
In fact, most of the companies charged with unethical business practices were not licensed.
The Nevada Legislation will allow licensed mortgage modification companies to get paid in advance if they put the money in a trust account until the loan has been renegotiated and the client is satisfied.
Additionally, before a mortgage modification company can be licensed, it will be required to post surety bonds in the amount of $75,000 to $100,000.
Even with these requirements, it could be difficult for homeowners to recoup their money if the company goes out of business.
The only recourse for homeowners is to file a claim in small claims court.
If the homeowner wins their case, they must first try to get the defunct loan modification company to pay the judgment.
If they are unsuccessful, they can request that the bond company to pay the judgment.
However, the new FTC rules pose a major problem for reputable loan modification consultants.
Since the new rules says a client does not have to pay any fees until they are satisfied with the outcome, then can legally walk away without paying any fees, even if the consultant has been legitimately pursuing a loan modification on the homeowner's behalf.
While the intent may have been to protect consumers, the fallout may hinder those same consumers from getting the help they need.
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