FTC Begins Rulemaking to Address Unfair and Deceptive Mortgage Practices

In an effort to better protect financially distressed homeowners, the Federal Trade Commission has initiated a rulemaking proceeding involving foreclosure rescue and loan modification services. The FTC is seeking public comment to determine whether certain practices by companies providing these services are unfair or deceptive and should be reined in by proposed rules that would set standards to protect consumers.

“Homeowners who are facing foreclosure or struggling to make mortgage payments shouldn’t have the added burden of being misled by unscrupulous businesses promising assistance that never comes,” FTC Chairman Jon Leibowitz said. “We deeply appreciate Senator Byron Dorgan’s and Chairman Jay Rockefeller’s efforts to give us the authority to use standard, efficient rulemaking procedures to begin this process.”

The Mortgage Assistance Relief Services rulemaking addresses the proliferation of loan modification and foreclosure rescue services in the current economy. The Commission has responded to the growth in these services with a substantial and sustained commitment to bringing law enforcement actions against those who make deceptive claims about these services to consumers in financial distress. Public comment will allow the Commission to assess whether rules would be useful in protecting consumers of these services. The FTC is particularly interested in receiving comment on the costs and benefits of prohibiting or restricting the payment of advance fees for loan modification and foreclosure rescue services. The Mortgage Assistance Relief Services Advance Notice of Proposed Rulemaking has a 45-day public comment period ending Wednesday, July 15, 2009.

In addition, the FTC is seeking comment on a second rulemaking, the Mortgage Acts and Practices rulemaking, which addresses activities that occur throughout the life-cycle of a mortgage loan: advertising and marketing; origination, including underwriting, loan terms, and disclosures; appraisals; and servicing. Public comment will allow the Commission to assess whether rules regarding any of these activities would be useful in protecting consumers. The FTC is particularly interested in receiving comments about mortgage servicing. The Mortgage Acts and Practices Advance Notice of Proposed Rulemaking has a 60-day public comment period ending Thursday, July 30, 2009.

The FTC rulemaking proceeding is required by Section 626 of the Omnibus Appropriations Act of 2009, which was authored by Senator Byron Dorgan. Any proposed rules would apply only to entities within the FTC’s jurisdiction under the FTC Act, which excludes banks, thrifts, and federal credit unions. The scope of any proposed rules will conform to the clarifications on the Commission’s rulemaking authority under the Credit Card Accountability Responsibility and Disclosure Act of 2009, which President Obama signed on May 22, 2009.

Comments on the rulemaking proceedings should include either the reference “Mortgage Assistance Relief Services Rulemaking, Rule No. R911003” or the reference “Mortgage Acts and Practices Rulemaking, Rule No. R911004” to facilitate organization of comments. Full instructions for submitting comments are found in the Addresses section of the Notices.

In considering the public comments received and developing rules, the Commission will consult with the Federal Reserve Board, and, where appropriate, other federal banking agencies.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.