New Federal Law Would Prohibit Advance Fees in all 50 States
Rep. Doris Matsui (D-CA) is going after companies offering loan modification services with her, Mortgage Foreclosure Rescue and Loan Modification Services Fraud Prevention Act of 2009, which she proposed a few days ago and was referred to two House Committees on June 2, 2009.
The bill, among other things, would prohibit advance fees nationally. Yes, you read that correctly… nationally… as in all 50 states… from coast to coast, as it were. The bill is only in the first step of the legislative process, and has a long way to go before becoming law, but it’s pretty clear that those offering loan modification services to homeowners aren’t winning any popularity contests these days, so I certainly don’t expect this one to simply die a quiet death. As it’s written, the bill DOES provide an exemption for law firms that offer to represent consumers in obtaining loan modifications.
Introduced bills and resolutions first go to committees where they are deliberated, investigated, and potentially revised before they go to general debate on the House floor. And even though the majority of bills and resolutions introduced each year never make it out of committee, I have the feeling this one will. Matsui’s bill has been referred to the House Financial Services and House Energy and Commerce committees as of last Thursday, although it will likely soon be assigned to sub-committees for actual debate. (Matsui is a member of the House Energy and Commerce Committee, by the way.)
The bill has four key components that would affect loan modification companies:
1. Any mortgage foreclosure rescue or loan modification service provider that provides services to a homeowner related to the foreclosure of residential property must execute a written contract containing “clear and prominent” disclosures describing the nature of the contract, the services to be provided and results to be achieved, and the total amount and terms of compensation.
I’m wondering if the “results to be achieved” section of that contract should include: Months of frustration and uncertainty, the re-faxing of documentation at least twice, and ultimately a modification the homeowner thinks should have been better.
2. The contract referred to above must contain, “clearly and prominently” notice that the homeowner may cancel the contract within a set number of business days (as determined by the Federal Trade Commission) without penalty or obligation.
What do you think they should give the homeowner in this regard… a month? Six weeks. Heck, why not just let them cancel right up until the day before the loan gets modified?
3. The bill prohibits mortgage foreclosure rescue and loan modification services from requesting or receiving ANY funds until any such services have been fully performed AND the results have been achieved AND the services and results have been documented to the consumer, nationwide.
You knew it was going to be in there. No matter how many times I read stuff like this, it still a head scratcher that they’re so much more concerned about someone losing three grand than they are about someone losing their home. And I absolutely love the “results have been achieved” part. I wonder if the banks would agree to work under this same basis.
4. It also says that “other prohibitions or restrictions on mortgage foreclosure rescue and loan modification services that are unfair or deceptive acts or practices” will be prohibited.
Well, all I can say about that is that it’s nice to know that there will finally be a law that prohibits “unfair or deceptive acts or practices,” because those things have been legal for far too long in this country, don’t you think?
I placed a call to Rep. Matsui’s office on Friday, but it was 4:45 pm, and we can’t expect our elected representatives to work right up until 5:00 pm on a Friday. She is from California, for heaven’s sake. In any case, I’ll be back on the phone on Monday to see what I can find out… although I’m pretty sure I know where she’s coming from at this point.
The good news is that you’ll be able to track the bill in committee right here at Mandelman Matters. Just scroll down on the left hand side of the page and you’ll see the bill tracker installed under the header: “H.R. 2666 on Loan Mod Firms”.
So, obviously It’s only going to get tougher out there for those in the business of helping homeowners get their mortgages modified, but that’s probably not all that much of a surprise. I’m sure the Senate, not to be outdone, will have their own version of the legislation any day or week now.
It reminds me of an old Russian proverb:
The church is near, but the road is icy. The tavern is far, but we will walk carefully.
If you want more information on lobbying efforts against this and other similar legislation at both the state and federal levels, contact Mandelman Matters at: mandelman@mac.com.
Head-scratcher about paying three grand and then getting nothing at all from the Mod Squad, at 4:45 Friday or at any other time?
Too much regulation is indeed bad, but in some areas, like loan mods, we just might need a few more rules, along with enforcement. I remember what the inner city Philly clowns did to delinquent VA borrowers in the 70s. That stuff goes on today, with only a few "refinements."
Of course there are some good guys on the field as well, and you can't broad-brush who they are ... there are some Congressional offices that are great, and others that are worse than the inner-city grifters. You can know them only by their fruit, and to accomplish that you might do well to get them out of the shadows.
So Mitsui's bill is extreme. Look at the bright side - it invites debate, which is something I think we need when it comes to making an "industry" out of extracting money from people who happen to be in the latter stages of prolonged dire stress.
Too much regulation is indeed bad, but in some areas, like loan mods, we just might need a few more rules, along with enforcement. I remember what the inner city Philly clowns did to delinquent VA borrowers in the 70s. That stuff goes on today, with only a few "refinements."
Of course there are some good guys on the field as well, and you can't broad-brush who they are ... there are some Congressional offices that are great, and others that are worse than the inner-city grifters. You can know them only by their fruit, and to accomplish that you might do well to get them out of the shadows.
So Mitsui's bill is extreme. Look at the bright side - it invites debate, which is something I think we need when it comes to making an "industry" out of extracting money from people who happen to be in the latter stages of prolonged dire stress.
ronin
Well, I certainly have to agree with your last statement: it does invite debate, and that is a good thing. As you may already know, my overriding position is that homeowners need options. Here's why:
1. Taking away legitimate options, will lead to homeowners being scammed. If you think about it, that's really what led to the scams in the first place. Homeowners were threatened with losing their homes. They tried government, they tried their lenders. And when neither worked, they became desperate and wrote checks to any port in the storm that offered to help. They didn't research, they didn't think it through... they panicked.
2. No centralized solution has the band width to handle the volume of homeowners that need help. Loan modifications are like snowflakes... no two are identical and they require time... a lot of time. Only the private sector, small business if you will, can accommodate the volume. The fact that you can help someone obtain a loan modification and make a profit doing so is a very good thing, because were that not the case, we'd have no alternatives but government and non-profits.
3. Assuming someone doesn't qualify for the Obama plan, which most in CA and similar states will not, getting rid of the legitimate private sector alternatives will force homeowners into calling a nonprofit or attempting to go it alone with their lender or servicer. And that seems to me to be wrong... more than wrong... it seems unconstitutional. The 5th Amendment says that no one shall be deprived of life, liberty or property without due process, and due process means "representation". I believe homeowners have a constitutional right to representation before their property is taken away from them. And "representation," in my mind anyway, doesn't mean a non-profit counselor.
4. I think it's become abundantly clear that the banking lobby doesn't want homeowners to have such representation when negotiating a loan modification. And further, I believe the reason for this is that such representation leads to a better outcome for the homeowner, and a worse one for the bank. I'm in the process of conducting a study on loans modified by the private sector in comparison with those modified by lenders and the hope Now Alliance, and I believe what we'll find is that mortgages modified by the private sector firms are more sustainable than those handled by lenders or the alliance. (For example, upon review of the first 700 records, it looks like re-default rates are closer to 30% than the 60% statistic associated with the alliance. Not conclusive, but getting there.)
5. I believe that the fact that homeowners by the tens of thousands in California alone, and hundreds of thousands nationwide, continue to call for-profit, private sector firms everyday, is evidence of the need for private sector solutions. They've watched television. They've all heard that they should call their lenders directly... and yet they continue to call private sector firms every single day. Why? Because they've exhausted their other options. I've personally interviewed at least 100 homeowners in jeopardy, and from that I can tell you that no one chooses the $3,000 option first.
6. I don't know why this is debatable, but not everyone is capable or comfortable contacting their lender directly to negotiate a modification of their mortgage. Lenders are debt collectors. They're not friendly. It's not easy. Why this country would come to believe that everyone should be able to take on such a negotiation is beyond me. We're all different people, with different skills. Some people can speak in front of an audience of 1,000, while others would rather die than do so.
7. I believe that it wouldn't be difficult at all to provide a framework of regulation for the private sector to operate within. I believe government is abdicating their responsibility by painting the entire industry with one broad brush, referring to all as a "scam" simply because they charge, or charge up front, for their services. I've hired quite a few professional consultants over the years and I've always had to write a check up front. Government seems to have figured out how to regulate the non-profits that are approved to help homeowners, why couldn't they use the same criteria for the for-profit alternatives? Background checks, the posting of a bond, federal penalties for abuse... if they can regulate the securities industry, they can certainly regulate this.
8. Our country now has over 22,000 investment adviser firms registered with the Securities and Exchange Commission, and they are entrusted with $10 trillion in customer funds. Yet, according to retired SEC Chairman Arthur Levitt, these firms can expect a visit from regulators only once in every 44 years on average. The Securities Exchange Commission (SEC), receives between 200 to 300 complaints of just Internet investment fraud DAILY. And regulators estimate securities fraud today costs Americans nearly $10 billion a year… that's roughly one million dollars an hour. Yet, no one tells me not to pay my financial advisor, or that they're all scams.
9. Billing someone after a mortgage has been modified is not a valid business model. People simply won't pay the bill in a large number of instances. There's no recourse if they don't pay the bill. You can't threaten to ruin their credit, it's already less than stellar. And Small Claims Court does not a business model make.
10. If consumers are so apparently unable to discern between a scam and a legitimate enterprise, what makes anyone think that they can handle the loan modification negotiation with their lender without assistance? Barack Obama's non-profit answer isn't free... taxpayers fund it. I simply want the choice of paying so that I am represented by an expert in the negotiations with my lender over my home. Why can't I be allowed that choice?
All in all, my points are those... shut down the scams and harness the power of the legitimate private sector firms to get this behind us. The banks won't like it, but if that's what's stopping us from utilizing this obvious, shovel ready solution, than that's all the more reason to make sure it's allowed.
Of course, today those are just my opinions... but I believe soon they will be shared by many.
Let's just cut this to the chase:
Congressperson Mitsui is either corrupt or she is ignorant. She is either a muse of the banksters or she has been duped by the banksters. Bottom line.
There is a totally legit way to do loan mods: it's called Pay As You Go.
Break the process up into four events:
1) upfront, free, no obligation interview to determine the status of the homeowner;
2) face-to-face fee-based consultation to counsel the homeowner and gather their financial information (I charge $295.);
3) fee-based analysis, packaging and submission of the financial information to the lender - much like processing and submission of a loan package (I charge $450.)
Prior to submission, the information is reviewed with the homeowner who pays a fee for this process. They have the option of paying the processing fee, submitting the file and negotiating with the lender themselves or paying the processing fee and entering into a contract with the mod company to negotiate on their behalf;
4) the homeowner pays a fee to the loan mod company for successfully negotiating the modification, payable through an escrow company or other neutral third party at the time of acceptance. (I charge $2500.) The neutral thrid party has yet to be set up, but could easily be incorporated into the process based on my conversations with several escrow officers. They just need instructions.
At any time prior to submission the homeowner can opt out and handle the negotiation themselves without charge for the negotiation. They must, however, pay for the services rendered. We can even give them a three day right of recission just like a refi.
One final thought: the Home Affordable Plan allows the lenders to force the homeowners to perform a three-month (at least) "forebearance plan". From my experience that payment equates to about $1250 per month for three months - $3,750.
I have personally been witness to lenders pulling the plug on the modifcation after taking several payments which were then applied to past payments and fees, stating that the homeowner - who made the payments in a satisfactory manner - "did not qualify" for a modification.
Really now: who is scamming who here?
Again, I am reminded of the Jay Leno joke about the time that the banksters showed up at the White House to meet with Obama. When they went through security they were told to empty out their pockets. When they did, out fell Chris Dodd and Barney Frank. 'Nuff said.
-
Congressperson Mitsui is either corrupt or she is ignorant. She is either a muse of the banksters or she has been duped by the banksters. Bottom line.
There is a totally legit way to do loan mods: it's called Pay As You Go.
Break the process up into four events:
1) upfront, free, no obligation interview to determine the status of the homeowner;
2) face-to-face fee-based consultation to counsel the homeowner and gather their financial information (I charge $295.);
3) fee-based analysis, packaging and submission of the financial information to the lender - much like processing and submission of a loan package (I charge $450.)
Prior to submission, the information is reviewed with the homeowner who pays a fee for this process. They have the option of paying the processing fee, submitting the file and negotiating with the lender themselves or paying the processing fee and entering into a contract with the mod company to negotiate on their behalf;
4) the homeowner pays a fee to the loan mod company for successfully negotiating the modification, payable through an escrow company or other neutral third party at the time of acceptance. (I charge $2500.) The neutral thrid party has yet to be set up, but could easily be incorporated into the process based on my conversations with several escrow officers. They just need instructions.
At any time prior to submission the homeowner can opt out and handle the negotiation themselves without charge for the negotiation. They must, however, pay for the services rendered. We can even give them a three day right of recission just like a refi.
One final thought: the Home Affordable Plan allows the lenders to force the homeowners to perform a three-month (at least) "forebearance plan". From my experience that payment equates to about $1250 per month for three months - $3,750.
I have personally been witness to lenders pulling the plug on the modifcation after taking several payments which were then applied to past payments and fees, stating that the homeowner - who made the payments in a satisfactory manner - "did not qualify" for a modification.
Really now: who is scamming who here?
Again, I am reminded of the Jay Leno joke about the time that the banksters showed up at the White House to meet with Obama. When they went through security they were told to empty out their pockets. When they did, out fell Chris Dodd and Barney Frank. 'Nuff said.
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I understand what you're saying, but is all that really necessary? Can you think of any other private sector business that's regulated that way... or even anything close? The non-profits that Obama has sent millions to aren't being put through any such nonsense. ACORN just got another $7 million for a phone system. Why should legitimate firms have to be restricted in such a way? Let the firms register. Provide stiff penalties for fraud. And let the business do business.
M -
I agree, this is all BS.
However, we're fighting an uphill, pitched battle against the strongest lobby on the planet (banksters) which is ultimately funded by our own tax dollars through TARP. We're also fighting against groups such as ACORN who have a specially reserved teet at the Obama pork barrel. That is the reality.
Enforce the existing laws has always been a great argument, as has "buyer beware". Unfortunately, common sense is at an extreme premium these days.
My solution provides an "opt out" for homeowners at each step, allowing them to dictate the level of service received while paying the service provider for time invested. It is also very similar to the process one goes through for originating loans (consultation, application, documentation, submission), meaning that it is very familiar to all the stakeholders from DRE down to the consumer allowing it to be regulated in such a fashion.
I own a mod company and this legislation is a flipping joke. So are they going to garnish wages on the behalf of the modification companies if the clients attempt to welch on paying us after the modification has been completed? And how can you expect us to describe in detail what we will achieve when the banks are constantly changing their guidelines as to what they will and will not modify. I tried to call this Congresswoman's office and she only takes callso from her district. If she is tabling legislation that affects people outside of her district like me, shouldn't I be given a chance to enlighten her before she jacks up things?
Don Clark...
Well, I would strongly encourage you NOT to call her or write to her. At least not before you spoken with me.
I don't know if you have read my column before or if this is your first time. If it is your first time, you should click on several of my articles this month, or going back several months so that you can get more familiar with who I am and what I'm doing. You can also read my cover story in The Niche Report at http://www.thenichereport.com. Just scroll down and click on the May cover. My story starts on page 16.
Then call me to discuss this in greater detail. I have put together a team that is officially lobbying against this bill and numerous others and you should get the whole picture in order to make sure your efforts are successful.
You can reach me at 714-904-2288.
Martin Andelman
Mandelman Matters
ML-Implode
I just can't figure it out. Why the attorney who are doing same work using the processors are not under any type of these laws. Here in California the "foreclosure specialist" must be registered with the Attorney general Office and post a $100,000 bond. I do believe that Florida and Massachusetts just staring to come up with new legislation for Loan Modifiers
Any thought?