Debt Relief IQ is a unique on-line consumer debt relief portal that automates the way in which consumers manage their credit debt, is 100% free of any upfront or enrollment fees and gives control back to the consumer utilizing easy to use software. In an environment of extreme government regulation where little help exists to help the consumer navigate back to financial solvency, the consumer is in dire need for simple, straight forward tools to moderate their spiraling foreclosure rates and credit debt problems.
In an attempt to create protection for distressed homeowners who are susceptible to less than scrupulous firms promising to deliver loan modifications, the Federal Trade Commission (FTC) has recently passed the new MARS ruling (Mortgage Assistance Relief Services). This ruling is designed to protect distressed homeowners from mortgage relief scams. Explaining the ruling, FTC Chairman Jon Leibowitz said, “At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage debt relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results. 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.”
The FTC is in Regulation Overdrive
The FTC’s quest to regulate the debt relief industry became official since it has officially banned debt settlement companies from taking any advanced fees back on October 27, 2010. As a result, debt settlement firms may not charge any upfront or enrollment fees when hired to settle the unsecured debts of the consumer. To be sure, it is no easy task to unravel credit card debt that has taken years, even decades to amass. And, clearly, much work goes into contacting, managing and negotiating with the consumer debt creditors. Yet, so many unscrupulous firms have forced state enforcers to bring a combined 259 cases to stop deceptive and abusive practices by debt relief providers that have targeted consumers in financial distress.
Debt Relief IQ’s management and staff has counseled thousands of distressed consumers, and we have experienced first-hand that it is no picnic in dealing with lender servicers. Of course, we do not intend on defending the loan modification firms that took hard-earned money and never intended on delivering a final product to the distressed homeowner. The reality of programs such as Home Affordable Modification Program (HAMP), however, is that the mega-servicers who are entrusted to proactively offer loan modification solutions to homeowners do not have the technology and proper processes in place to create an effective program that allows a majority of delinquent homeowners to at least apply for a loan modification directly with the lender servicer, and not feel compelled to throwing up a “hail Mary” and hire a third- party loan modification firm to process and negotiate a loan modification.
Lender Servicers are Failing Miserably
Servicers use inadequate methods to contact and engage the borrower in order to evaluate whether a loan modification can be accomplished. With so many consumers capitulating due to delinquent mortgage, and unsecured consumer debt such as credit card debt and personal lines of credit, a growing number of homeowners simply do not even bother to answer their phones to avoid the stress of dealing with high pressure collection agents.
A vast majority of the Servicer’s infrastructure and staff is consumed by servicing collection calls, chasing consumers that are delinquent and barraging households with multiple phone calls daily that are generated by automatic dialers. To be clear, the purpose of these calls is to collect on delinquent mortgage or credit card debt payments, not to offer a proactive approach in helping the borrower understand his/her options and Servicers were never prepared to handle the acceleration of nonperforming loans.
Unfortunately, the lender servicers are clearly not doing their part which is a big reason that distressed homeowners have felt compelled to seek third parties to negotiate a loan modification. I recently spoke to a pier at one of the large Servicers who shared with me that out of the last 20,000 Home Affordable Modification Program (HAMP) packages sent to homeowners that only 400 of those packages resulted in a completed loan modification. In fact, according to the Amherst Securities Group, the Fannie Mae servicers had completed approximately 300,000 modifications including 160,000 restructurings that meet Home Affordable Modification Program (HAMP) specifications out of nearly two million delinquent homeowners that should to be eligible for loan modifications. Fannie Mae has over 60,000 distressed borrowers in HAMP trials, only 6% of its seriously delinquent loans.
New FTC Rule Requires Short Sale Disclosures
The Federal Trade Commission (“FTC”) has issued a final rule that may impact real estate professionals who represent clients involved in a short sale transaction. Depending on certain factors, the rules may require real estate professionals to make certain disclosures to consumers if they negotiate a short sale with a lender, advertise short sales experience, or take upfront fees from short sale sellers. The MARS rules took full effect on January 31, 2011.
Background
In November 2010, the FTC published the final Mortgage Assistance Relief Services final rule (“MARS rule”). The MARS rule is primarily directed at companies that offer loan modification services to consumers. When a company is marketing these types of services to consumers, the MARS rule requires that the MARS provider make certain disclosures to consumers. In addition, the MARS rule bars advance fees paid to a MARS provider, prohibit certain representations, and imposes record keeping requirements (must retain for 2 years all MARS advertisements, sales records for covered transactions, customer communications, and customer contracts). MARS providers can only receive payment if the consumer’s loan is modified by the lender.
The FTC and state attorney generals have actively prosecuted foreclosure rescue companies, based on evidence that consumers received very little benefit for these services. The prosecutions took place under unfair trade practices laws, although some states did enact laws specifically regulating this business model. The FTC itself has brought 40 cases and FTC staff told NAR that none of these cases involved real estate professionals acting in their licensed capacity.
The FTC began its rulemaking process in 2009. NAR submitted comments and testimony during the rulemaking seeking an exemption for real estate licensees (click here to read NAR’s first and second comment letters). The FTC addressed NAR’s comments in the following footnote:
The Commission concludes that an exemption for real estate agents is not necessary. Real estate agents customarily assist
consumers in selling or buying homes and perform functions such as listing homes for sale, showing homes, and finding desirable homes for consumers. The Commission is aware that real estate agents may perform these functions when properties are bought or sold through a short sale transaction, but does not consider these services to be MARS.
Final MARS Rule and Real Estate Agents
The MARS rule covers short sale negotiations, and so this is the area where real estate professionals acting in their licensed capacity may need to comply with these rules. FTC staff has determined that if an agent “negotiates” will include all communications with a lender about the possibility of a short sale transaction involving a consumer’s mortgage. A short sale is a transaction where the title to the property changes, the sales price is insufficient to pay all the liens, the seller does not provide funds to clear the liens on the property, and the lender agrees to allow the sale to occur by releasing the liens on the property. In some cases, the lender may hold the seller liable for the shortfall, which is called a “deficiency”.
The MARS rule contains the following definitions:
“Mortgage Assistance Relief Service” is defined as a “service, plan, or program offered or provided to the consumer in exchange for consideration” that provides services in relation to a consumer’s mortgage, including negotiating a possible loan modification, directing a consumer to stop or otherwise alter the amount of his/her mortgage payment, modifying the consumer’s payment arrangements, or negotiating a short sale of a dwelling on behalf of a consumer.
“Mortgage Assistance Relief Service Provider” is someone who “provides, offers to provide, or arranges to provide, any mortgage assistance relief service.”
Based on those definitions, the MARS rule can have an impact on a real estate professional that represents clients involved in a short sale transaction. Licensed real estate professionals that provide services that most likely fall within the MARS rule, and firms operating as MARS business and not acting as a real estate licensee, should understand these rules to ensure that their business practices comply with MARS ruling.
Just as in California where regulators banned up-front fees for all loan modification companies (SB 94, passed in 2009), the MARS ruling now banns any upfront fees for all short sale and loan modification services nationwide. Again, as part of the problem, loan modification services would normally require an up-front fee of several hundred to several thousand dollars. The inherit problem with blanket regulation such as the MARS ruling, however, is that legitimate debt relief firms that are doing the hard work of negotiating, packaging up financial information, tax returns, income information and profit and loss statements while chasing down the lender servicers on the behalf of distressed homeowners, have been forced to flee the industry because it is impossible to pay the infrastructure costs of running a business that requires sales people, negotiators, processors and management staff if all revenue must be earned after the service is completed. And, while the lender servicers have failed miserably in bringing debt relief options to distressed consumers, the recent FTC ruling, while it will protect some consumers from rogue firms, will most certainly force some debt relief firms that are good consumer advocates that truly help consumers out of business.
For those consumers that would information on other Debt Settlement programs contact by Debt Relief IQ at www.debtreliefIQ.com or call 888-431-9131.
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About the Author
Richard Kaye holds a BA from the University of California at Los Angeles and has spent 20 years in the financial services sector, first serving as a registered securities principal. He later expanded his services to include investment banking where he guided company clients with financing, public market listings and institutional sponsorship. Subsequently, Richard co-founded Mortgage Solutions, a full service mortgage lender and recently developed valuable consumer direct loss mitigation platforms instrumental in saving homes and rehabilitating consumers, including Debt Relief IQ, an automated online debt relief portal that guides consumers to debt settlement resolution utilizing proprietary technology. He is currently the Chairman of Red Rock Servicing, a national asset management servicer that deploys a proprietary ‘single system of record’ technology to manage distressed mortgage assets. For more information visit: http://www.debtreliefiq.com