FTC Halts Mortgage Loan Modification Scam

Financial Services Law

The Federal Trade Commission (FTC) put a stop to a mortgage loan modification operation, filing suit in Nevada federal court alleging violations of the Mortgage Assistance Relief Services (MARS) Rule and the FTC Act.

What happened

According to the agency’s complaint, multiple corporate defendants and three individuals promised expert legal assistance, claiming a 98 to 100 percent success record in modifying consumer loans, beginning in October 2011 and continuing to the present day.

For example, one ad read

Borrower was 7 months behind. MONTHLY PAYMENT CUT OVER 60%!
Borrower now saving over $24,000.00 a year! Lender: IndyMac
Old Payment: $3,496.21 Old Rate: 8.00%
New Payment: $1,474.26 New Rate: 2.50%

The price for guaranteeing to cut a homeowner’s interest rate in half and reduce the monthly mortgage payments by hundreds of dollars? The defendants required $3,900 up front or $650 in six monthly installments before commencing work on a consumer’s file, the FTC said.

“Defendants have preyed on financially distressed homeowners by luring them into signing contracts for MARS services with promises that they will receive expert legal assistance from Defendants’ attorneys that will stop them from going into foreclosure and modify their mortgage loans to make their payments more affordable,” the agency alleged.

Other elements of the defendants’ marketing—which appeared online, in mailers, on television and radio ads, and over the phone—also ran afoul of the FTC Act, the agency said. They used doctored government logos in correspondence and falsely suggested they were affiliated with or endorsed by the federal government’s Making Home Affordable loan modification program. In some instances, the defendants claimed to have special relationships with particular lenders.

Some consumers were advised to stop paying their mortgages or communicating with their lenders, leading to even greater problems, the FTC said. Others paid hundreds or thousands of dollars to find out that the defendants had not obtained the guaranteed loan modifications—and sometimes they had never even contacted the lender at all. As a result, consumers incurred substantial interest charges or other penalties, and some lost their homes due to foreclosure, the agency told the Nevada federal court.

Granting the FTC’s motion for a temporary restraining order, the court halted the operation and froze the defendants’ assets.

To read the complaint and the temporary restraining order, click here.

Why it matters

The FTC’s action provides an important reminder for mortgage assistance relief companies to comply with the MARS Rule. For example, don’t charge upfront fees or advise customers to stop communicating with their lender or servicer, both illegal actions under the Rule. Clear and prominent disclosures (with details on the total cost and that the lender may not agree to change the terms of their mortgage, among other information) are necessary before signing consumers up for services, as is a clear and prominent warning that the failure to pay a mortgage could result in the loss of a home or damage to a consumer’s credit rating. All of the agency’s truth in advertising principles also remain in effect.