It’s about time.  I’ve been saying this is going to turn into a national crisis for a year now.  From the AP

The head of the Federal Trade Commission said Thursday the agency is considering banning upfront payments to companies that advertise help for borrowers who are in trouble on their home loans.

Government officials say scammers seeking to take advantage of borrowers in danger of default often charge upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.

“If you are concerned about keeping your home, avoid any company that asks you for a large fee in advance. That is a real red flag,” said Jon Leibowitz, chairman of the FTC. Such upfront fees are already prohibited in 20 states.

Let’s ban all up front fees unless the service provider is a member of a State Bar Association. Attorney-backed loan mod firms charging upfront fees are not a good option either. That set up is typically a subprime salesperson boiler room. The California investigation found that with attorney-backed loan mod firms, never once did an actual attorney touch the file.  Read more about the loan mod mess in California here.

Third party loan mod salesmen should only be allowed to collect a fee once the loan modification is not only performed but also after the homeowner has made a specific number of on time payments.  This will rid the system of the Devil’s Rejects subprime LOs who act like they just walked off the set of a Rob Zombie movie and can only smell money. Let’s leave the real work to the people who can help homeowners figure out if they can actually afford to stay in the home or if they are better off selling. 

It seems there will always be a certain percentage of people who will believe anything and an equal percentage of people willing to prey on them.  But with a person’s home, the stakes are higher than an acai berry total body cleanse.

I predict that we will have the usual suspects crying that the FTCs actions will only raise the cost of hiring a third party loan mod company.  I call BS on that argument because homeowners have always been able to receive a loan mod for free by working directly with their lender, or receiving free help from a non-profit housing counseling agency or by seeking out free legal aid from their state’s Bar Association.