FTC seeks to implement its own version of "SB-94"

The Federal Trade Commission is currently seeking input, particularly from attorneys, as to a proposed law that would prevent loan modification providers from charging fees up front. The law would allow loan modification companies to collect money only after the services are provided.

"Homeowners facing foreclosure or struggling to make mortgage payments shouldn't have to contend with fraudulent companies that don't provide what they promise," said FTC Chairman Jon Leibowitz. "The proposed rule would outlaw upfront fees so companies can't take the money and run."

I agree with him in that the last thing that struggling homeowners need to worry about is being defrauded. But I disagree that the best way to address this problem is by preventing loan modification providers from earning any money. In my opinion, the best way to prevent fraud would be to draft specific regulations that loan modification providers must follow. For example, loan modification company may not advertise that a modification is 100% guaranteed. Or, private loan modification companies must disclose that they are not affiliated with government-funded organizations. The FTC could compile these regulations in an easy-to-read 1 page notice that could be sent to homeowners by banks or mortgage companies prior to initiating foreclosure proceedings.

As discussed in my previous posts, banks are simply taking too long to evaluate borrowers for loan modification and in many cases, denying borrowers based on arbitrary or incorrect information. In many cases, the process can drag on for more than one year. What business can sustain itself without getting paid for one year? None.

The regulations proposed by the FTC would have a chilling effect on loan modification providers, homeowners and ultimately, the economy as a whole. Homeowners will be forced to face the banks alone, will have no recourse when they are denied (in many cases, wrongfully denied), and finally, will face foreclosure and lose their homes. I'm sure that lobbyists for the banks are thrilled.