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FTC Toughens Rules On Loan Modification Assistance Companies

A new Federal Trade Commission rule became effective last week that is intended to provide financially distressed consumers with more protection from unscrupulous companies offering to help with debt. A second rule becomes effective at the end of this month barring companies that offer loan modification assistance from collecting advance fees.

Ohio bankruptcy attorneys are aware that many distressed homeowners have been left in a worse position after entering into agreements with unscrupulous companies that essentially operate scams.

One east coast couple recently told their story to the Huffington Post. The couple earns a combined income of $127,000. In 2008, the couple took out a second mortgage on their home at 14 percent interest. The couple believed the interest rate was to be reduced after six months.

As time passed, the interest rate remained high. The couple had difficulty making their first and second mortgage payments among the other necessaries for the household of six.

The couple says they fell for a loan modification scam. They reportedly paid an upfront fee of $3,600 to a loan modification company called Nationwide Home Relief. The company promised mortgage lower payments in exchange for the upfront fee. The loan modification company told the couple to stop making their mortgage payments.

The couple says the company went so far as to tell the couple to stop payments no what the bank says. In two to three months, max-the couple would have a modification with lower payments. After months rolled by-no loan modification, no contact with Nationwide Home Relief and a real possibility that the bank would foreclose on the family home. The couple has scheduled an appointment with a bankruptcy attorney.

The FTC says that loan modification scams have become more prevalent since the foreclosure crisis erupted. The FTC has new rules that prohibit loan modification companies telling a homeowner to stop making mortgage payments, unless the loan modification company also tells the homeowner they could lose their home and damage their credit by stopping mortgage payments.

Source: Huffington Post, "Loan Modification Scam Pushing Working Parents Toward Bankruptcy," Laura Bassett 5 Jan 2011

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