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Loan modifications can be great for those that qualify. Unfortunately there are bunch of scams out there. This is the main reason we started this site. Always be careful if you give anyone money up front. \

DSNews

Four fair housing organizations have released their findings of a year-long undercover investigation of 80 loan modification companies, which reveal a host of corrupt practices scammers employ to target homeowners in distress.

Their analysis uncovered common tactics used by scammers to steal money from homeowners. According to the report, 55 percent of loan modification companies required an upfront fee to start work or a low initial fee to conduct minimal work on behalf of distressed homeowners, such as reviewing loan documents.

Some 43 percent guaranteed or promised they could secure a loan modification before learning about the homeowner’s financial limitations, and 24 percent advised or encouraged homeowners to stop making mortgage payments or stop contacting their lenders.

The report also revealed that 16 percent of loan mod companies guaranteed a much lower interest rate ranging between 2 and 6 percent on modified loans. While 12 percent discouraged homeowners from seeking free help from government-approved housing counseling agencies, 8 percent encouraged providing fraudulent information to lenders.

“This is shameful abuse by loan modification scammers to take advantage of desperate homeowners,” said Shanna L. Smith, NFHA president and CEO. “We and our partner organizations will work to see to it that these companies are prosecuted by the Federal Trade Commission and other federal and state enforcement agencies.”

In a statement, the fair housing organizations asked the financial services industry to recommit itself to providing sustainable loan modifications.

They request that the Federal Trade Commission strengthen its mortgage assistance relief services (MARS) rules to prohibit upfront fees for all loan modification companies, including law firms. They also call for strengthened enforcement and education efforts by the federal government.

DSNews.com

A new Federal Trade Commission (FTC) rule bans providers of foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable.

According to the FTC, the Mortgage Assistance Relief Services (MARS) rule was issued to protect distressed homeowners from mortgage relief scams that have proliferated during the mortgage crisis. The FTC warns that many of these operations pretend to be affiliated with the government and government housing assistance programs.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” said FTC chairman Jon Leibowitz. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

Under the advance fee provision, mortgage relief companies must also provide a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. They must also remind consumers of their right to reject the offer without any charge.

The MARS rule also requires that advertising and communications directed at individual consumers (such as telemarketing calls) disclose that the company is not associated with the government and their services are not approved by the government or the consumer’s lender. If companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies must also explain to consumers that they can stop doing business with the company at any time and can accept or reject any offer the company obtains from the lender or servicer. If they reject the offer, they don’t have to pay the company’s fee, which the company must also disclose.

Additionally, the MARS rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about the likelihood of consumers getting the results they seek, the company’s refund and cancellation policies, and the cost of services, among other claims.

Attorneys are generally exempt from the new rule if they are engaged in the practice of law, licensed in the state where the consumer or the dwelling is located, and complying with state laws and regulations governing attorney conduct related to the rule.

All provisions of the rule-except the advance-fee ban, which will be effective January 31, 2011-will become effective December 29, 2010.