RISMEDIA, April 30, 2008-The Federal Trade Commission testified before the U.S. Senate Committee on Commerce, Science, and Transportation’s Subcommittee on Interstate Commerce, Trade, and Tourism, about the Commission’s continuing efforts to protect subprime mortgage borrowers.

The testimony described the agency’s priorities, including deceptive mortgage advertising, deceptive or unfair servicing practices, discrimination in lending, and foreclosure rescue scams, and it emphasized the following points:

- The Commission has been at the forefront of the fight against deceptive subprime lending and servicing practices since 1998, when it filed its case against Capital City Mortgage. The case alleged that the defendant took advantage of African-American consumers in Washington, D.C.
- In the past decade, the FTC has brought 22 actions in the mortgage lending industry, with particular attention to entities in the subprime markets. Through these cases, many of which have challenged deceptive advertising and marketing practices, the FTC has returned more than $320 million to consumers.
- The Commission is investigating more than a dozen mortgage companies as part of a mortgage advertising law enforcement sweep. Last year, the agency sent more than 200 warning letters to mortgage brokers, mortgage lenders, and media outlets that carry their home mortgage advertisements. FTC staff recently reviewed the current advertising of those who received warning letters and will follow up with law enforcement where appropriate.
- With the recent rapid increase in mortgage delinquencies and foreclosures, the FTC has intensified its focus on protecting consumers from scams that promise to rescue them from mortgage foreclosure. The Commission has filed law enforcement actions against defendants allegedly engaged in mortgage foreclosure fraud, and has additional nonpublic matters under investigation.
- This month, FTC staff filed a public comment in response to the Federal Reserve Board’s proposed rules to restrict certain mortgage practices. The comment supports the Board’s goals of protecting consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices. If the Board’s rules are finalized, the FTC will have the authority to enforce them against nonbank entities under its jurisdiction. The FTC’s enforcement efforts would be more effective if it could obtain civil penalties for violations of these rules.

To empower consumers to better protect themselves from potentially harmful conduct, the FTC’s extensive consumer education efforts include new educational materials, in English and Spanish, about deceptive mortgage advertisements, buying a home, mortgage foreclosure rescue scams, and steps borrowers can take to avoid foreclosure.

The Commission engages in research and policy development to better understand and protect consumers in the mortgage marketplace. Next month, FTC staff economists will host a conference to assess the role of consumer information in the current mortgage crisis, and to discuss strategies for ensuring that mortgage disclosures will be designed to provide the greatest benefit to consumers.

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 4-0.

In other FTC news, they have charged Foreclosure Solutions, LLC and Timothy A. Buckley with operating a nationwide mortgage foreclosure “rescue” scam that charged consumers as much as $1,200 to save their homes from foreclosure but failed to do so. The FTC seeks to bar them from further law violations and make them forfeit their ill-gotten gains.

According to the FTC’s complaint, the defendants market their services through direct mail to consumers named in court records of foreclosure actions and through Internet websites, including www.program10.com and www.foreclosuresolutionsusa.net. Through the direct mail solicitations, the defendants warn that consumers could lose their home within 10 days, and they promise that they can stop foreclosure proceedings. In one of their letters they claim a 93% success rate.

Consumers who call a toll-free number are told that the defendants will provide an attorney and a case manager to help them avoid foreclosure, the complaint alleges. The defendants allegedly state that they have helped thousands of others, and they promise to guarantee in writing that they will save each consumer’s home. In some instances, consumers are permitted to pay about half the fee up-front and the balance within 30 days for an extra $50.

The defendants allegedly send a representative to the consumer’s home to close the sale and collect the up-front fee. In the agreement they require consumers to sign, they attempt to disclaim their guarantee that they will save the consumers’ homes, stating that they will work faithfully but not guarantee the success of their efforts. The defendants also provide consumers with a money-back guarantee, promising a refund if the consumer follows their instructions to save money and avoid lender phone calls. They also require consumers to sign a power of attorney form, authorizing them to represent the consumer in the foreclosure action.

In addition, the complaint alleges that the defendants instruct consumers to open a savings account and to deposit, every month until further notice from the defendants, the consumer’s monthly mortgage payment plus an additional 25 to 35%. They claim that the extra payment will be used to negotiate with the lender to reinstate the loan. After consumers have paid for the services, the defendants often don’t answer or return their calls. In other instances, the defendants’ representatives allegedly tell consumers that they are working on a solution, that they need more information from the consumer, or that no solution can be found.

According to the complaint, the defendants hire attorneys to respond to the foreclosure complaints filed against consumers. In many instances, the attorneys file the same form response to every complaint, usually without investigating consumers’ individual circumstances that might identify defenses or counterclaims unique to particular consumers. In many instances, the defendants do not stop foreclosure or save consumers’ homes, and many consumers who have contracted for their services lose their homes to foreclosure. Consumers who stop foreclosure through their own efforts sometimes learn that their lenders offer the same settlement terms regardless of whether the consumers negotiate on their own or through the defendants. Others learn that their lenders will negotiate only with them and not with the defendants.

The Ohio-based defendants are charged with falsely representing that they will stop foreclosure in all or virtually all instances, in violation of the FTC Act.

The Commission vote to authorize staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Northern District of Ohio, Eastern Division.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

For more information, visit http://www.ftc.gov.

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Alexandra Zega (Lic. in MA and NH)