The Federal Trade Commission has proposed a rule that would ban companies that promote foreclosure and mortgage modification programs from charging upfront fees. Instead, such companies would only collect payments after providing services.

The FTC is seeking public input, particularly from attorneys, on the rule, which would require mortgage relief companies to make good on their promised results before charging or accepting payments from consumers. Under the rule, companies could not be paid until they had a documented offer from a mortgage lender or servicer.

The FTC has brought 28 cases in this area, and state and federal law agencies partners have brought hundreds more. Generally the cases charge that companies do not provide the services they promise and misrepresent an affiliation with government housing assistance programs - including the Making Home Affordable Program.

Historic levels of consumer debt, increased unemployment and an unprecedented downturn in the housing and mortgage markets have contributed to high rates of mortgage loan delinquencies and foreclosures. According to the FTC, the mortgage crisis has launched an industry of companies claiming, for a fee, to obtain mortgage loan modifications or other relief for consumers facing foreclosure.

"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 in a statement. "The proposed rule would outlaw upfront fees so companies can't take the money and run."

The proposed rule also would bar providers from telling consumers to stop communicating with their lenders or mortgage servicers, and from misleading them about key facts including: the likelihood of getting the results they want, and how long it will take; their affiliation with public or private entities; payment and other existing mortgage obligations; and refund and cancellation policies.

The proposed rule also would require providers to disclose that they are for-profit businesses, that neither the government nor the consumer's lender has approved their services, and that there is no guarantee the lender will agree to change their loan.

The proposed rules would apply to for-profit companies that, in exchange for a fee, offer to work with lenders and servicers on behalf of consumers to modify the terms of mortgage loans or to take other steps to avoid foreclosure. The proposed rules generally exempt entities that own or service mortgage loans. Attorneys would have a limited exemption from the proposed advance fee ban if they represent consumers in a bankruptcy or other legal proceeding.

By a 4-0 vote, the FTC authorized publication in the Federal Register of the Notice of Proposed Rulemaking, which has a 45-day public comment period ending March 29. 

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