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:

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