Federal regulators gathered today to announce a program to combat fraud in companies offering delinquent borrowers guaranteed loan modification help in exchange for up-front payments. That means regulators have figured out how to spot evil Hope Now impersonators, but they shouldn´t stop there. Some observers say borrowers seeking loan mods need even more protection.

"So far, the Treasury Department and Federal Deposit Insurance Corp. have paid almost no attention to the terms of loan mods apart from setting standards for affordability," said Alan White, a law professor at Valparaiso University who monitors foreclosure trends and loan modification efforts. "I think some members of Congress at one point expressed concern that homeowners were being required to sign broad releases of claims in loan modifications, but I am not aware of any regulator taking action on the issue."

There are few lending laws that specifically include loan modifications. Truth in Lending disclosure requirements are only required for loan mods in which the interest rate or the monthly payment increases.

Jim Krager, a forensic loan auditor based in Los Angeles County, said even the federal government´s loan mod efforts leave something to be desired. Krager said he thinks lenders should have to reveal the interest rates at which they´re lending to borrowers with various credit scores. He also advocates for a mandatory agreement between borrowers and lenders on property values, so that borrowers know the approximate values of their properties as compared with the size of their mortgage loans.

Then, Krager said, the government should advise borrowers on how to communicate with their lenders.

"If the bank doesn´t bring your interest rate down close to a current market rate and make it fixed, and if it won´t bring your principal down to the current value, ask the bank why," he said. "The bank tends to lose more in the foreclosure than it would lose in its principal balance drop."

Another loan auditor, Steve Dilbert, who is based in West Palm Beach, Fla., said banks simply aren´t doing the things they say they´re doing to reach out to borrowers.

"If you were to listen to the banks," he said, "and you were to listen to some of the press releases coming out of [Washington] you´d think that the banks are having tea and crumpets with the homeowners, and they´re trying to work something out with them--but they´re not."

The first step to fixing these problems would be better reporting on loan mod efforts by banks and regulators. The quarterly loan mod report released by the OCC and the OTS is gaining prominence with each new issuance. It should include even more details about the terms of the loan mods than it already does.

Comptroller John Dugan said told American Banker last week that lower monthly payments--a feature that is actually rare among the latest loan mods--would most help borrowers keep from defaulting on their loans. Perhaps there are other markers for a successful loan mod that may be identified and promoted by regulators.

The next step would be actually getting the Obama administration´s loan mod plan off the ground. This would allow the Department of Housing and Urban Development and other agencies to increase their oversight of major lenders and servicers participating. Until the plan is in operation and contractual agreements with servicers are put in place, the government will have only patchy oversight and enforcement authority when it comes to loan mods.