Mortgage Assistance Relief Services, 75092-75144 [2010-29694]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 75, Number 230 (Wednesday, December 1, 2010)]
[Rules and Regulations]
[Pages 75092-75144]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29694]



[[Page 75091]]

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Part VI





Federal Trade Commission





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16 CFR Part 322



Mortgage Assistance Relief Services; Final Rule

Federal Register / Vol. 75 , No. 230 / Wednesday, December 1, 2010 / 
Rules and Regulations

[[Page 75092]]


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FEDERAL TRADE COMMISSION

16 CFR Part 322

RIN 3084-AB18


Mortgage Assistance Relief Services

AGENCY: Federal Trade Commission (FTC or Commission).

ACTION: Final rule.

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SUMMARY: Pursuant to the 2009 Omnibus Appropriations Act (Omnibus 
Appropriations Act), as clarified by the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 (Credit CARD Act), the 
Commission issues a Final Rule and Statement of Basis and Purpose (SBP) 
concerning the practices of for-profit companies that, in exchange for 
a fee, offer to work on behalf of consumers to help them obtain 
modifications to the terms of mortgage loans or to avoid foreclosure on 
those loans. The Final Rule, among other things, would: prohibit 
providers of such mortgage assistance relief services from making false 
or misleading claims; mandate that providers disclose certain 
information about these services; bar the collection of advance fees 
for these services; prohibit anyone from providing substantial 
assistance or support to another they know or consciously avoid knowing 
is engaged in a violation of the Rule; and impose recordkeeping and 
compliance requirements.

DATES: This final rule is effective on December 29, 2010, except for 
Sec.  322.5, which is effective on January 31, 2011.

ADDRESSES: Requests for copies of this Rule and this Statement of Basis 
and Purpose (SBP) should be sent to: Public Reference Branch, Federal 
Trade Commission, 600 Pennsylvania Avenue, NW., Room 130, Washington, 
DC 20580. The complete record of this proceeding is also available at 
that address. Relevant portions of the proceeding, including the Final 
Rule and SBP, are available at (https://www.ftc.gov).

FOR FURTHER INFORMATION CONTACT: Laura Sullivan or Evan Zullow, 
Attorneys, Division of Financial Practices, Federal Trade Commission, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Authority

    On March 11, 2009, President Obama signed the Omnibus 
Appropriations Act of 2009.\1\ Section 626 of the Act directed the 
Commission to commence, within 90 days of enactment, a rulemaking 
proceeding with respect to mortgage loans.\2\ Section 626 also directed 
the FTC to use notice and comment procedures under Section 553 of the 
Administrative Procedure Act (APA), 5 U.S.C. 553, to promulgate these 
rules.\3\
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    \1\ Omnibus Appropriations Act, 2009, Public Law 111-8, 123 
Stat. 524 (Omnibus Appropriations Act).
    \2\ Id. Sec.  626(a).
    \3\ Id. Because Congress directed the Commission to use these 
APA rulemaking procedures, the FTC did not use the procedures set 
forth in Section 18 of the FTC Act, 15 U.S.C. 57a.
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    On May 22, 2009, President Obama signed the Credit CARD Act.\4\ 
Section 511 of this statute clarified the Commission's rulemaking 
authority under the Omnibus Appropriations Act. First, Section 511 
specified that the rulemaking ``shall relate to unfair or deceptive 
acts or practices regarding mortgage loans, which may include unfair or 
deceptive acts or practices involving loan modification and foreclosure 
rescue services.''\5\ The Omnibus Appropriations Act, as clarified by 
the Credit CARD Act, does not specify any particular types of 
provisions that the Commission should include, or refrain from 
including, in a rule addressing loan modification and foreclosure 
rescue services, but rather directs the Commission to issue rules that 
``relate to'' unfairness or deception.\6\ Accordingly, the Commission 
interprets the Omnibus Appropriations Act to allow it to issue rules 
that prohibit or restrict conduct that may not be unfair or deceptive 
itself, but that are reasonably related to the goal of preventing 
unfairness or deception.\7\
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    \4\ Credit Card Accountability Responsibility and Disclosure Act 
of 2009, Public Law 111-24, 123 Stat. 1734 (Credit CARD Act).
    \5\ Id. Sec.  511(a)(1)(B).
    \6\ Id.
    \7\ Unlike Section 18 of the FTC Act, 15 U.S.C. 57a, see 
Katharine Gibbs Sch. v. FTC, 612 F.2d 658 (2d Cir. 1979), the 
Omnibus Appropriations Act, as clarified by the Credit CARD Act, 
does not require that the Commission identify with specificity in 
the rule the unfair or deceptive acts or practices that the 
prohibitions will prevent. Omnibus Appropriations Act Sec.  626(a); 
Credit CARD Act Sec.  511(a)(1)(B).
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    Second, Section 511 of the Credit CARD Act clarified that the 
Commission's rulemaking authority was limited to entities that are 
subject to enforcement by the Commission under the FTC Act.\8\ The 
rules the Commission promulgates to implement the Omnibus 
Appropriations Act, therefore, cannot cover the practices of banks, 
thrifts, Federal credit unions,\9\ or certain nonprofits.\10\
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    \8\ Credit CARD Act Sec.  511(a)(1)(C).
    \9\ 15 U.S.C. 45(a)(2).
    \10\ 15 U.S.C. 44. Bona fide nonprofit entities are exempt from 
the jurisdiction of the FTC Act. Sections 4 and 5 of the FTC Act 
confer on the Commission jurisdiction over persons, partnerships, or 
corporations organized to carry on business for their profit or that 
of their members. 15 U.S.C. 44, 45(a)(2). The FTC does, however, 
have jurisdiction over for-profit entities that provide mortgage-
related services as a result of a contractual relationship with a 
nonprofit organization. See Nat'l Fed'n of the Blind v. FTC, 420 
F.3d 331, 334-35 (4th Cir. 2005). In addition, the Commission has 
jurisdiction over sham non-profits that in fact operate as for-
profit entities. See infra note 176.
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    The Omnibus Appropriations Act, as clarified by the Credit CARD 
Act, also permits both the Commission and the states to enforce the 
rules the FTC issues.\11\ The Commission can use its powers under the 
FTC Act to investigate and enforce the rules, and the FTC can seek 
civil penalties under the FTC Act against those who violate them. In 
addition, states can enforce the rules by bringing civil actions in 
Federal district court or another court of competent jurisdiction to 
obtain civil penalties and other relief. Before bringing such an 
action, however, states must give 60 days advance notice to the 
Commission or other ``primary federal regulator'' of the proposed 
defendant, and the regulator has the right to intervene in the action.
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    \11\ Omnibus Appropriations Act Sec.  626(b); Credit CARD Act 
Sec.  511(a)(1)(B).
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    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street 
Reform and Consumer Protection Act.\12\ The Dodd-Frank Act made 
substantial changes in the federal regulatory framework for providers 
of financial services. Among the changes, the Dodd-Frank Act will 
transfer the Commission's rulemaking authority under the Omnibus 
Appropriations Act to a new Bureau of Consumer Financial Protection 
(BCFP)\13\ on July 21, 2011, which is the ``designated transfer date'' 
that the Treasury Department has set.\14\ In addition, on the 
designated transfer date, the FTC's authority to ``prescribe rules'' 
and ``issue guidelines'' under the Omnibus Appropriations Act will 
transfer to the BCFP.\15\ Both the Commission and the BCFP, however, 
will have authority to bring law enforcement actions to enforce the 
rules promulgated under the Omnibus Appropriations Act, including the 
Final Rule in this Proceeding.
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    \12\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Pub. L. 111-203, 124 Stat. 1376 (2010) (Dodd-Frank Act).
    \13\ Id. Sec.  1061.
    \14\ Dep't of the Treasury, Bureau of Consumer Financial 
Protection; Designated Transfer Date, 75 FR 57252, 57253 (Sept. 20, 
2010); see also Dodd-Frank Act Sec.  1062.
    \15\ Dodd-Frank Act Sec.  1061.
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B. The Rulemaking and Public Comments Received

    On June 1, 2009, the Commission published in the Federal Register 
an Advance Notice of Proposed

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Rulemaking (ANPR) addressing the acts and practices of for-profit 
companies that offer to work on behalf of consumers to help them modify 
the terms of their loans or to avoid foreclosure. The ANPR described 
these services generically as ``Mortgage Assistance Relief Services,'' 
or ``MARS.'' \16\ On March 9, 2010, the Commission published\17\ a 
Notice of Proposed Rulemaking (NPRM) and proposed rule addressing 
Mortgage Assistance Relief Services (MARS).\18\ Among other things, the 
proposed rule included provisions that would:
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    \16\ See Mortgage Assistance Relief Services, 74 FR 26130 (June 
1, 2009) (MARS ANPR). In response to the ANPR, the Commission 
received a total of 46 comments, which are available at https://www.ftc.gov/os/comments/mars/index.shtm. Notably, a wide spectrum of 
these commenters, including a consortium of over 40 state attorneys 
general, consumer and community organizations, and financial service 
providers, strongly urged the Commission to propose a rule 
prohibiting or restricting the collection of fees for mortgage 
relief services until the promised services have been completed. 
Additionally, a majority of the comments expressed concern regarding 
pervasive deception and abuse in the marketing of MARS, including 
misrepresentations regarding the services MARS providers will 
perform and regarding their affiliation with the government, 
nonprofits, lenders, or loan servicers.
    This SBP cites to comments submitted in response to both the 
ANPR and the NPRM. To distinguish the comments submitted in response 
to the ANPR, the notation ``(ANPR)'' is included in any citations to 
them.
    \17\ See Press Release, FTC, FTC Proposes Rule That Would Bar 
Mortgage Relief Companies From Charging Up-Front Fees (Feb. 4, 
2010), available at https://www.ftc.gov/opa/2010/02/mars.shtm.
    \18\ See Mortgage Assistance Relief Services, 75 FR 10707 (Mar. 
9, 2010) (MARS NPRM).
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     Prohibit MARS providers from making false or misleading 
claims;
     Mandate that providers disclose certain information about 
their services;
     Bar the collection of advance fees for the provision of 
MARS, except in certain circumstances for attorneys who collect them in 
connection with preparing or filing documents in bankruptcy, court, or 
administrative proceedings;
     Prohibit anyone from providing substantial assistance or 
support to another they know or consciously avoid knowing is engaged in 
a violation of the rule; and
     Impose recordkeeping and compliance requirements.
    In response to the NPRM, the Commission received 75 comments from 
stakeholders, including for-profit MARS providers, state law enforcers, 
consumer and community groups, state bars and bar associations, and 
financial service providers.\19\ The largest number of comments--a 
total of 30--were submitted either by attorneys who provide MARS \20\ 
or entities representing attorneys, including the American Bar 
Association and several state bar associations.\21\ These comments 
focused on the scope of the proposed rule's exemption for attorneys, 
asserting that the Commission should expand the exemption. Other 
commenters, including some consumer groups and a coalition of state 
bank examiners, also advocated that the proposed exemption for 
attorneys be broadened, although to a lesser extent than the attorneys 
and their representatives advocated.\22\ By contrast, comments from 
NAAG \23\ and others\24\ urged the Commission not to change the 
attorney exemption in the proposed rule.
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    \19\ The comments submitted in response to the NPRM are 
available at https://www.ftc.gov/os/comments/mars-nprm/index.shtm. A 
list of those who submitted comments appears following Section V of 
this SBP.
    \20\ See, e.g., Deal; Greenfield.
    \21\ See, e.g., Am. Bar Ass'n (ABA); ME BA at 1-2; OR Bar at 1; 
WI Bar at 1; GA Bar at 1; FL Bar at 1.
    \22\ See, e.g., NCLC at 10-13; CSBS at 4-5.
    \23\ See NAAG at 3-4.
    \24\ See, e.g., CUUS at 8-9.
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    Apart from comments that focused on the coverage of attorneys, most 
comments supported the proposed rule and its specific provisions. Most 
significantly, these comments generally supported an advance fee 
ban,\25\ although a few non-attorney MARS providers opposed it.\26\
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    \25\ See, e.g., MN AG at 3; OH AG at 1; MBA at 2-3 (supporting 
``strict prohibition'' of advance fees); NAAG at 2 (``The advance 
fee ban is the linchpin of effective deterrence of fraudulent 
practices by providers of mortgage relief services.''); NCLC at 3 
(``The single most important provision is section 322.5, which 
prohibits the collection of any fee before providing tangible 
results of real value to consumers.''); AFSA at 5 (``Banning upfront 
fees is the best way for the FTC to ensure that MARS providers do 
really provide consumers with a beneficial service.''); see also 
CSBS at 3; CUUS at 6; NYC DCA at 3.
    \26\ See, e.g., Metropolis; RMI; Hirsch.
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II. Mortgage Assistance Relief Services

A. The Mortgage Crisis and Assistance for Consumers

    As discussed in the ANPR and NPRM, historically high levels of 
consumer debt, increased unemployment, and a stagnant housing market 
have contributed to high rates of mortgage loan delinquencies, which in 
many cases lead to foreclosures.\27\ As a result, many consumers 
struggling to make their mortgage payments have been searching for ways 
to avoid default and foreclosure. There are a number of options that 
may be available to them, including: (1) Short sales or deeds-in-lieu 
of foreclosure transactions, in which the proceeds of a sale of the 
home or the receipt of the deed to the home, respectively, are treated 
by the mortgage lender as repayment of the outstanding mortgage 
balance; (2) forbearance or repayment plans that do not reduce the 
amount that consumers must pay but give them more time to bring their 
balance current; and (3) loan modifications that reduce consumers' 
indebtedness or the amount of their monthly payments. Because loan 
modifications allow consumers to stay in their homes and reduce their 
debt, this possible solution often has great appeal to them. The 
Commission's law enforcement experience suggests that loan 
modifications are the type of MARS most frequently marketed and 
sold.\28\
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    \27\ See, e.g., MARS NPRM, 75 FR at 10708-09; MBA, 
Delinquencies, Foreclosure Starts Increase in Latest MBA National 
Delinquency Survey (May 19, 2010) (``The delinquency rate for 
mortgage loans on one-to-four-unit residential properties increased 
to a seasonally adjusted rate of 10.06 percent of all loans 
outstanding as of the end of the first quarter of 2010, an increase 
of 59 basis points from the fourth quarter of 2009, and up 94 basis 
points from one year ago.''), available at https://www.mbaa.org/NewsandMedia/PressCenter/72906.htm; NCLC at 2; Press Release, 
Realtytrac, Year-end Report Shows Record 2.8 Million U.S. Properties 
With Foreclosure Filings in 2009 (Jan. 14, 2010), available at 
https://www.realtytrac.com/contentmanagement/pressrelease.aspx?itemid=8333; Credit Suisse Fixed Income Research 2 
(2008) (forecasting a total of 9 million foreclosures for the period 
2009 through 2012), available at https://www.chapa.org/pdf/ForeclosureUpdateCreditSuisse.pdf.
    \28\ See List of MARS Law Enforcement Actions, following Section 
V of the SBP, for a list of cases that the FTC has prosecuted (``FTC 
Case List''). Unless otherwise specified, all citations to FTC 
actions in this SBP refer to the complaints in these lawsuits.
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    In response to the mortgage crisis, government and private sector 
programs have been initiated to assist distressed homeowners.\29\ In 
March 2009, the Obama Administration launched the Making Home 
Affordable (MHA) program and the MHA's Home Affordable Modification 
Program (HAMP), through which the government provides mortgage owners 
and servicers with financial incentives to modify and refinance 
loans.\30\ Under the program,

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lenders and servicers have approved roughly 500,000 permanent loan 
modifications.\31\ The Treasury Department has also recently expanded 
the MHA program to assist more borrowers, for example, by introducing 
additional incentives for servicers to write down the outstanding 
principal balance for borrowers who are ``under water,'' that is, who 
owe more on their mortgages than the value of their homes.\32\
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    \29\ See, e.g., HOPE NOW, About Us (``HOPE NOW is an alliance 
between counselors, mortgage companies, investors, and other 
mortgage market participants. This alliance will maximize outreach 
efforts to homeowners in distress to help them stay in their homes 
and will create a unified, coordinated plan to reach and help as 
many homeowners as possible.''), available at https://www.hopenow.com/hopenow-aboutus.php.
    \30\ For example, the program offers servicers that modify loans 
according to its guidelines an up-front fee of $1,000 for each 
modification, ``pay for success'' fees on still-performing loans of 
$1,000 per year, and one-time bonus incentive payments of $1,500 to 
lender/investors, and $500 to servicers, for a modification made 
while a borrower is still current on his or her mortgage payments. 
Dep't of the Treasury, Making Home Affordable Summary of Guidelines 
2 (March 4, 2010), available at https://www.ustreas.gov/press/releases/reports/guidelines_summary.pdf.
    \31\ See, e.g., Dep't of the Treasury, Making Home Affordable 
Program: Servicer Performance Report Through September 2010 (Oct. 
25, 2010), available at https://www.financialstability.gov/docs/Sept%20MHA%20Public%202010.pdf. Further, if trial modifications are 
added to permanent modifications, over 1.6 million modifications 
have been approved. Id., Testimony of Herbert M. Allison, Dep't of 
the Treasury, ``Foreclosure Prevention: Is the Home Affordable 
Modification Program Preserving Homeownership?,'' before the H. 
Comm. on Oversight and Gov't Reform, at 5 (Mar. 25, 2010), available 
at https://oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/2010/032510_HAMP/TESTIMONY-Allison.pdf.
    \32\ See Press Release, Making Home Affordable (``MHA'') Housing 
Program Enhancements Offer Additional Options for Struggling 
Homeowners (Mar. 26, 2010), available at https://makinghomeaffordable.gov/pr_03262010.html.
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    On April 5, 2010, the Administration launched the Home Affordable 
Foreclosure Alternatives (HAFA) Program, which provides servicers with 
incentives to enter into short sales or deeds-in-lieu of foreclosure 
transactions with consumers who do not qualify for a loan modification 
under the MHA program.\33\ In addition, state and local governments, 
nonprofit organizations, housing counselors, and private sector 
entities\34\ have offered a variety of other programs and services to 
help homeowners in financial distress.\35\
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    \33\ See MHA, Home Affordable Foreclosure Alternatives (HAFA) 
Program, available at https://makinghomeaffordable.gov/hafa.html.
    \34\ Loan holders also have exhibited a growing willingness to 
modify loan terms for borrowers who do not qualify for loan 
modifications under government programs such as HAMP. These are 
known as ``proprietary loan modifications.'' See Press Release, HOPE 
NOW, HOPE NOW Reports More Than 476,000 Loan Modifications in the 
First Quarter of 2010 (May 10, 2010), available at https://www.hopenow.com/press_release/files/1Q%20Data%20Release_05_10_10.pdf (reporting that the industry completed 312,329 proprietary 
loan modifications in the first quarter of 2010).
    \35\ See, e.g., Freddie Mac, Foreclosure Prevention Workshops 
for Consumers, https://www.freddiemac.com/avoidforeclosure/workshops.html (describing local credit counseling events by local 
governments and nonprofits); FTC, Mortgage Payments Sending You 
Reeling? Here's What to Do (2009), available at https://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.pdf (describing various credit 
counseling alternatives).
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    Despite these public and private programs and services, consumers 
also continue to seek assistance from for-profit companies who act as 
intermediaries between consumers and their lenders or servicers in 
obtaining mortgage assistance relief services--including loan 
modifications. This may be happening for a number of reasons. First, 
MARS have been advertised and marketed widely in mass media and online, 
with the result that consumers may be more aware of the services 
offered by for-profit entities than they are of other available 
programs. Second, many consumers who are seeking loan modifications or 
other relief are not eligible for the MHA program or other government 
and private assistance programs. While the Treasury Department has 
estimated that the MHA program will help 3-4 million borrowers by 
February 2012,\36\ industry reports estimate that roughly twice that 
number of mortgage loans currently are in delinquency or 
foreclosure.\37\ Third, even among consumers who may be eligible to 
obtain a temporary loan modification under the MHA program, many do not 
qualify for a permanent loan modification.\38\ Fourth, even if 
consumers are eligible for government programs or assistance directly 
from their servicers or lenders, many housing counselors and servicers 
have struggled to respond in a timely manner to the extraordinary 
number of consumers who are seeking loan modifications.\39\ Finally, 
the Treasury Department also has observed that some servicers have not 
adequately met consumer demand for loan modifications under the HAMP 
program.\40\
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    \36\ See, e.g., Press Release, MHA, Making Home Affordable 
Program on Pace to Offer Help to Millions of Homeowners (Aug. 4, 
2009) available at https://www.makinghomeaffordable.gov/pr_08042009.html; Dep't of the Treasury, Making Home Affordable 
Program: Servicer Report Through June 2010 at 7 n.2 (June 2010) 
(``Selected Outreach Measures'' table), available at https://www.financialstability.gov/docs/June%20MHA%20Public%20Revised%20080610.pdf.
    \37\ See Alan Zibel, Foreclosures Down 2 Percent From Last Year, 
Associated Press, May 13, 2010 (noting that as of March 2010, 
``[n]early 7.4 million borrowers, or 12 percent of all households 
with a mortgage, had missed at least one month of payments or were 
in foreclosure''), available at https://abcnews.go.com/Business/wireStory?id=10632332; see also Press Release, Mortgage Bankers 
Ass'n, Delinquencies, Foreclosure Starts Fall in Latest MBA National 
Delinquency Survey (Feb. 19, 2010) (noting that roughly 15% of 
mortgage loans were delinquent or in foreclosure and that ``[t]he 
percentages of loans 90 days or more past due and loans in 
foreclosure set new record highs''), available at https://www.mbaa.org/NewsandMedia/PressCenter/71891.htm; Stephanie Armour, 
Home Foreclosure Rates Posts First Annual Decline in Five Years, USA 
Today (May 13, 2010) (noting that nearly one-fourth of borrowers owe 
more on their mortgages that the value of their homes).
    \38\ See, e.g., Dep't of the Treasury: MHA Servicer Report June 
2010 at 1; NCRC, NCRC Home Affordable Modification Program Survey 
2010, at 2 (noting that, as of February 2010, only 12.5% of trial 
modifications had been converted into permanent modifications), 
available at https://www.ncrc.org/images/stories/mediaCenter_reports/hamp_report_2010.pdf; Foreclosure Prevention: Is the Home 
Affordable Modification Program Preserving Homeownership: Hearing 
Before the H. Comm. on Oversight & Gov't Reform, 111th Cong. (2010) 
(statement of Gene Dodaro, Acting Comptroller General, Government 
Accountability Office) (prepared statement at 7), available at 
https://oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/2010/032510_HAMP/TESTIMONY-Dodaro.pdf (noting that 32% of 
trial modifications lasting three months or more had been approved 
for conversion into permanent modifications).
    \39\ See, e.g., CRL at 3 (noting that MARS have flourished as 
``consumers' demand for relief outpaces the capacity of mortgage 
servicers and government programs alike''); The Recently Announced 
Revisions to the Home Affordable Modification Program (HAMP): 
Hearing Before the Subcomm. on Hous. & Cmty. Opportunity of the H. 
Comm. on Fin. Servs., 111th Cong. 131 (2010) (statement of Alan 
White, Assistant Professor, Valparaiso Univ.), available at https://financialservices.house.gov/Media/file/hearings/111/Printed%20Hearings/111-122.pdf. (``Modification requests are 
languishing for as long as a year, servicers repeatedly ask 
borrowers to resubmit documentation that has been lost or become 
outdated, and housing counselors and mediators are unable to get 
timely information and responses from servicers.''); NCLC (ANPR) at 
2 (noting that servicers have failed to meet borrower demand for 
loan modifications); NAAG (ANPR) at 7 (noting that borrowers have 
had difficulty reaching servicers and obtaining their assistance).
    \40\ See, e.g., Holding Banks Accountable: Are Treasury and 
Banks Doing Enough to Help Families Save Their Homes?: Hearing 
Before the S. Subcomm. on Fin. Servs. & Gen. Gov't of the S. Comm. 
on Appropriations, 111th Cong. (2010) (statement of Timothy 
Geithner, Sec'y, Dep't of the Treasury) (``[W]e do not believe that 
servicers are doing enough to help homeowners.'')
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    Many consumers who have been unable to obtain mortgage assistance 
relief services through their own efforts have turned to for-profit 
MARS providers for help. Providers promoting their ability to negotiate 
with lenders and servicers to obtain loan modifications or some other 
type of mortgage relief have proliferated in the past few years.\41\ 
Responding to consumer demand, many providers have promised to obtain 
loan modifications,\42\ but others have begun

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to market short sales and other forms of relief.\43\ The Commission's 
law enforcement experience shows that MARS providers typically are 
small and relatively new businesses,\44\ and thus it is difficult to 
estimate their numbers.\45\ Based on the law enforcement actions 
brought by the FTC and the states, however, it appears that there are 
over 500 such providers in the United States.\46\
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    \41\ See MARS ANPR, 74 FR at 26134-35.
    \42\ See, e.g., Safe Mortgage Licensing Act: HUD 
Responsibilities Under the Safe Act, Proposed Rule, 74 FR 66548, 
66554 (Dec. 15, 2009) (``HUD has seen a substantial increase in the 
number of third-party actors (i.e., individuals other than lenders 
and loan servicers) offering their services as intermediaries 
putatively to work on behalf of borrowers to negotiate modifications 
of existing loan terms.''); NAAG (ANPR) at 2 (``[T]he [loan 
modification] consulting business model is dominating the 
marketplace. Consultants are by far the most common source of 
consumer complaints received by our offices in the area of mortgage 
assistance services.''); OH AG (ANPR) at 2 (``For those companies 
that actually do put some effort into helping the consumer, the most 
common business model is an offer to negotiate a loan modification 
or repayment plan with the consumer's servicer.''); CRC (ANPR) at 1 
(``In California, advertisements promising loan modification success 
are inescapable.''); FinCEN, Loan Modification and Foreclosure 
Rescue Scams--Evolving Trends and Patterns in Bank Secrecy Act 
Reporting 10 (May 2010), available at https://www.fincen.gov/news_room/rp/files/MLFLoanMODForeclosure.pdf (FinCEN Report) (``Reports 
of foreclosure rescue scams increased substantially in the last 
eight months of calendar year 2009.'').
    \43\ Although the dominant trend among MARS providers is to 
offer loan modifications, over the past few years some providers 
also have offered other purported types of loss mitigation and 
foreclosure avoidance. See, e.g., FTC v. Foreclosure Solutions, LLC, 
No. 1:08-cv-01075 (N.D. Ohio filed Apr. 28, 2008) (alleging that 
provider offered to stop foreclosure proceedings and secure workout 
plans with consumers' lenders or servicers); FTC v. Mortgage 
Foreclosure Solutions, Inc., No. 8:08-cv-388-T-23EAJ (M.D. Fla. 
filed Feb. 26, 2008) (same). Providers may adjust their marketing to 
offer newly-minted forms of mortgage relief--for example, the 
possibility of entering a short sale under the HAFA program. See, 
e.g., Illinois v. Home Foreclosure Solutions LLC, No. 08CH43259 
(Ill. Cir. Ct. Cook County 2008) (alleging MARS provider offered to 
assist consumers to enter short sales). Another new variation of 
MARS is charging an advance fee to purportedly ``eliminate'' 
mortgage debts by challenging the legality of the original 
mortgages. See FinCEN, Foreclosure Rescue Fraud Report May 2010, 
supra note 42 at 9. MARS providers also have offered ``sale-
leaseback'' or ``title reconveyance'' transactions. In these 
transactions, MARS providers instruct consumers to transfer title to 
their homes to the providers and then the consumers rent the homes 
from them. The providers promise to reconvey title at some later 
date, yet often do not do so, thereby taking the equity in the 
homes. Sale-leaseback and title reconveyance transactions appear to 
have become less prevalent, in part because many consumers do not 
have sufficient equity in their homes to make this strategy 
profitable. See, e.g., FinCEN, Foreclosure Rescue Fraud Report May 
2010, supra note 42 at 4.
    \44\ See FTC Case List. Some of these small and relatively new 
businesses are law firms. For example, NCLC surveyed members of the 
National Association of Consumer Advocates (NACA) and the National 
Association of Consumer Bankruptcy Attorneys (NACBA); 298 attorneys 
responded that they provided some form of MARS. NCLC at 5; see also 
IRELA at 1 (stating that many of the 2,000 members of the Illinois 
Real Estate Lawyers Association are ``engaged in the process of 
trying to assist their consumer clients in dealing with 
foreclosures, mortgage loan workouts, and related matters'').
    \45\ See, e.g., U.S. Gov't Accountability Office, GAO-10-787, 
Federal Efforts to Combat Foreclosure Rescue Schemes are Under Way, 
but Improved Planning Elements Could Enhance Progress 12-16 (July 
2010) (``GAO Report'') (noting that data on MARS providers is 
limited); NAAG (ANPR) at 3 (``It is difficult to gather exact 
empirical data on companies providing loan modification and 
foreclosure rescue services due to the predominance of Internet-
based companies and their ephemeral nature.''); OH AG (ANPR) at 2 
(``There is little reliable data about the foreclosure rescue 
industry.''); CRL at 3 (``With few barriers to entry and little to 
no oversight, scams are flourishing in the current environment.'').
    \46\ See NAAG (ANPR) at 4 (noting that state attorneys general 
have investigated more than 450 MARS providers); FTC Case List, 
supra note 28; Press Release, FTC, Federal and State Agencies Crack 
Down on Mortgage Modification and Foreclosure Rescue Scams (Apr. 6, 
2009), available at https://www.ftc.gov/opa/2009/04/hud.shtm 
(reporting that the Commission sent warning letters to 71 companies 
offering MARS).
---------------------------------------------------------------------------

    Typically, MARS providers charge consumers hundreds or thousands of 
dollars \47\ in advance fees, i.e., fees prior to providing their 
services. In its law enforcement actions, the FTC has observed that 
some providers collect their entire fee at the beginning of the 
transaction,\48\ while others collect two to three large installment 
payments from consumers.\49\ NAAG and other commenters also stated that 
many MARS providers have begun to offer their services piecemeal, 
collecting fees upon reaching various stages in the process, such as 
assembling the documentation required by the lender or servicer, 
mailing paperwork to the lender or servicer, and negotiating with a 
lender's loss mitigation department.\50\
---------------------------------------------------------------------------

    \47\ See, e.g., infra notes 48-49; GAO Report, supra note 45, at 
7 (noting that MARS typically charge a fee of thousands of dollars); 
Dargon at 2 (``We charge $2,500 as a flat fee'' in advance.); CRC 
(ANPR) at 2 (``The average fee that we are seeing borrowers charged 
is $3,000; we have seen fees as high as $9,500. In nearly every 
instance, these fees are charged up front, before any services have 
been rendered.''); NCRC (ANPR) at 3 (noting that ``[t]ypically, loan 
modification companies request a significant fee upfront'' and that 
a study performed by NCRC ``documented a median fee of $2,900,'' 
although ``[f]ees ranged as high as $5,600''); NCLR (ANPR) at 1 
(observing fees as high as $8,000); NCLC (ANPR) at 5-6 (estimating 
typical advance fees to be between $2,000 and $4,000).
    \48\ See, e.g., supra note 47; FTC v. Infinity Group Servs., No. 
SACV09-00977 DOC (MLGx) (C.D. Cal. filed Aug. 26, 2009); FTC v. 
Freedom Foreclosure Prevention Specialists, LLC, No. 2:09-cv-01167-
FJM (D. Ariz. June 1, 2009); FTC v. Fed. Loan Modification Law Ctr., 
LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009).
    \49\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 23, 2009); FTC v. Washington Data 
Res., Inc., No. 8:09-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 
2009); FTC v. First Universal Lending, LLC, No. 09-CV-82322, Mem. 
Supp. TRO at 5 (S.D. Fla. filed Nov. 24, 2009); see also, e.g., 
Dargon at 2; Rogers at 13.
    \50\ See, e.g., LFSV at 2 (``[W]e have seen MARS providers who 
are effectively evading the advance fee prohibition in California 
law by charging for their `services' in `phases.' ''); NAAG at 3; 
LCCR at 5; see also FTC v. Debt Advocacy Ctr., LLC, No. 1:09CV2712 
(N.D. Ohio filed Nov. 19, 2009).
---------------------------------------------------------------------------

    As discussed in the ANPR and NPRM, MARS providers often claim to 
possess specialized knowledge of the mortgage lending industry,\51\ 
sometimes touting their hiring of former mortgage brokers and real 
estate agents \52\ to bolster their claims of purported expertise. In 
addition, some attorneys--including solo practitioners and small law 
firms that represent financially distressed individuals--increasingly 
have been offering MARS in connection with their legal practice.\53\
---------------------------------------------------------------------------

    \51\ See, e.g., NCLC (ANPR) at 3 (``Some modification firms 
claim superior expertise even though there are no recognized 
qualifications other than the training programs offered by HUD to 
certified agencies. Instead, some for-profit entities tout their 
experience as mortgage industry insiders.''); NAAG (ANPR) at 4; FTC 
v. Fed Housing Modification Dep't, No. 09-CV-01759 (D.D.C. filed 
Sept. 15, 2009) (alleging defendants' Web sites state that many of 
their ``skilled negotiators'' have ``worked for the lenders they are 
dealing with''); FTC v. US Foreclosure Relief Corp., No. SACV09-768 
JVS (MGX), Mem. Supp. TRO. at 4-5 (C.D. Cal. filed July 7, 2009) 
(alleging that defendants ``boasted of twenty years' experience'' 
and that they had ``extensive experience in the industry''); FTC v. 
Truman Foreclosure Assistance, LLC, No. 09-23543, Mem. Supp. P.I. at 
20 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendants' Web 
sites represented that they have ``extensive loss mitigation 
experience'' and that ``they are led by a seasoned and proven team 
of professionals''); see also FTC v. LucasLawCenter ``Inc.'', No. 
09-CV-770 (C.D. Cal filed July 7, 2009).
    \52\ See, e.g., NCLC (ANPR) at 11 (``Mortgage brokers--often 
cited as one of the driving forces in the growth of bad subprime 
loans--are in demand to work for loan modification companies. One 
MARS advertised for consultants with mortgage and real estate 
experience to join its cadre of loan modification specialists.''); 
GAO Report, supra note 45, at 10 (``Federal and state officials and 
representatives of nonprofit organizations told us that persons who 
have conducted foreclosure rescue schemes include former mortgage 
industry professionals who had been involved in the subprime market. 
* * *'').
    \53\ See generally Greenfield; Deal; Giles. See also NCLC at 4.
---------------------------------------------------------------------------

    A number of non-attorney MARS providers are employing or 
affiliating with lawyers, with the providers representing that they are 
offering traditional legal services.\54\ Although these providers often 
tout the expertise of these attorneys in negotiating with lenders and 
servicers, in many instances the attorneys do little or no bona fide 
legal work.\55\ In some cases, MARS

[[Page 75096]]

providers also offer ``forensic audits,'' during which attorneys 
purportedly conduct a legal analysis of mortgage loan documents to find 
law violations, thereby supposedly helping consumers acquire leverage 
over their lenders or servicers to obtain a better loan 
modification.\56\ Providers offering forensic audits also assert that, 
because of their relationships with attorneys, state laws that prohibit 
non-attorneys from collecting advance fees for loan modification 
services do not apply to them.\57\ For example, California law 
previously imposed a number of restrictions on ``foreclosure 
consultants,'' but allowed ``licensed attorneys * * * [to] charge 
advance fees under certain limited circumstances.'' \58\ The State Bar 
of California subsequently observed that ``foreclosure consultants may 
be attempting to avoid the statutory prohibition on collecting a fee 
before any services have been rendered by having a lawyer work with 
them in foreclosure consultations.'' \59\ California has since passed a 
new law that removes this attorney exemption.\60\
---------------------------------------------------------------------------

    \54\ See, e.g., NAAG at 3-4 (``We have noticed that national 
companies are recruiting for attorney ``partners'' or ``local 
counsel'' in all of the states they work in to evade states' 
mortgage rescue fraud statutes.''); IL AG at 1; FTC v. Loss 
Mitigation Servs., Inc., No. SACV09-800 DOC (ANX), Mem. Supp. Pls. 
Ex Parte App. at 3 (Aug. 3, 2009) (alleging that defendants engaged 
in ``misrepresentations prohibited by the TRO, behind a new facade: 
the `Walker Law Group,''' which was ``nothing more than a sham legal 
operation designed to evade state law restrictions on the collection 
of up-front fees for loan modification and foreclosure relief''); 
FTC v. LucasLawCenter ``Inc.'', No. SACV-09-770 DOC (ANX) (C.D. Cal. 
filed July 7, 2009); FTC v. Data Med. Capital Inc., No. SA-CV-99-
1266 AHS (Eex) (C.D. Cal., contempt application filed May 27, 2009); 
FTC v. US Foreclosure Relief Corp., No. SACV09-768 JVS (MGX) (C.D. 
Cal. filed July 7, 2009); FTC v. Fed. Loan Modification Law Ctr., 
LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 2009); see 
also Cincinnati Bar Assoc. v. Mullaney, 119 Ohio St. 3d 412 (2008) 
(disciplining attorneys involved in mortgage assistance relief 
services).
    \55\ See supra note 54. The experiences detailed in one comment 
from an attorney illustrate the role that attorneys play or have 
been asked to play in connection with MARS:
    I had numerous non-attorney modification companies ask me to 
serve as their lawyer and accept a flat fee on each file. I would 
get this money and do little or no work for it. In some cases I 
would take in the advance fee and then disburs[e] a share to the 
loan officer producing the deal and a share to the company actually 
doing the work. Or I would be collecting the advance fee and then 
holding all or part of it in my trust account until the modification 
was completed. I declined to get involved in such arrangements.
    Deal at 6.
    \56\ See, e.g., MN AG at 2 (``Recently, so-called forensic loan 
auditors have emerged as a new type of mortgage assistance relief 
`service.'''); 1st ALC at 3 (MARS provider stating it engages in 
forensic audits); Dargon at 2 (same); see also FTC v. Debt Advocacy 
Ctr., LLC, No. 1:09CV2712 (N.D. Ohio Am. Compl. filed May 14, 2010) 
(alleging defendants purporting to offer forensic audits 
misrepresented that ``between 80-90% of all loans [they] have 
audited have some form of rights violations''); FTC v. Data Med. 
Capital Inc., No. SA-CV-99-1266 AHS (Eex), Mem. Supp. App. Contempt 
at 18 (C.D. Cal. filed May 27, 2009); FTC v. Fed. Loan Modification 
Law Ctr., LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. filed Apr. 3, 
2009).
    Since publication of the NPRM, the Commission has released an 
alert to warn consumers about entities purporting to provide 
forensic audits. FTC, Forensic Mortgage Loan Audit Scams: A New 
Twist on Foreclosure Rescue Fraud (Mar. 2010), available at https://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt177.shtm; see also, 
e.g., Cal. Dep't of Real Estate, Consumer Alert 6 (Mar. 2009) 
(warning consumers of ``forensic loan reviews''), available at 
https://www.dre.ca.gov/pdf_docs/FraudWarningsCaDRE03_2009.pdf.
    \57\ See supra notes 51-56; see also IL AG (ANPR) at 2 
(``Attorneys are using the [state] exemption to market and sell the 
same mortgage consulting services provided by non-attorneys.'').
    \58\ Press Release, Office of the Att'y Gen., Cal. Dep't of 
Justice, Brown Alerts Homeowners that New Law Prohibits Up-front 
Fees for Foreclosure Relief Services (Oct. 15, 2009), available at 
https://ag.ca.gov/newsalerts/release.php?id=1821.
    \59\ See State Bar of Cal., Ethics Alert: Legal Services to 
Distressed Homeowners and Foreclosure Consultants on Loan 
Modifications (``Cal. State Bar Ethics Alert'') 2, Ethics Hotliner 
(Feb. 2, 2009), available at https://www.calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf ; see also Florida Bar, Ethics 
Alert: Providing Legal Services to Distressed Homeowners 1, 
available at https://www.floridabar.org/TFB/TFBResources.nsf/
Attachments/872C2A9D7B71F05785257569005795DE/$FILE/
loanModification20092.pdf?OpenElement (``The Florida Bar's Ethics 
Hotline recently has received numerous calls from lawyers who have 
been contacted by non-lawyers seeking to set up an arrangement in 
which the lawyers are involved in loan modifications, short sales, 
and other foreclosure-related rescue services on behalf of 
distressed homeowners. * * * The [Florida] Foreclosure Rescue Act * 
* * imposed restrictions on non-lawyer loan modifiers to protect 
distressed homeowners. The new statute appears to be the impetus for 
these inquiries.'').
    \60\ Cal Civ. Code Sec.  2944.7; see also Press Release, Office 
of the Att'y Gen.l, Cal. Dep't of Justice, Brown Alerts Homeowners 
that New Law Prohibits Up-front Fees for Foreclosure Relief Services 
(Oct. 15, 2009), available at https://ag.ca.gov/newsalerts/release.php?id=1821.
---------------------------------------------------------------------------

B. Unfair or Deceptive Practices in the Marketing of MARS

    The FTC, state attorneys general, and other law enforcement 
agencies, have extensive experience with MARS providers. In the past 
three years, the Commission has filed 32 law enforcement actions 
against providers of loan modification and foreclosure rescue 
services.\61\ State attorneys general have investigated at least 450 
MARS providers and sued hundreds of them for alleged state law 
violations.\62\ Additionally, the Department of Justice and other 
agencies, working both individually and jointly, have pursued MARS 
providers for illegal conduct.\63\ As discussed in more detail below, 
the evidence in the record, including extensive law enforcement 
experience, demonstrates that the unfair or deceptive practices of MARS 
providers are widespread and are causing substantial consumer harm.\64\ 
Indeed, one recent survey of state and local consumer agencies found 
that the fastest growing category of consumer complaints concerned the 
failure of MARS providers to fulfill their promises to help save 
consumers' homes from foreclosure.\65\
---------------------------------------------------------------------------

    \61\ See FTC Case List, supra note 28.
    \62\ NAAG (ANPR) at 4; IL AG (ANPR) at 1 (noting that Illinois 
has over 240 open investigations of MARS providers and filed 28 
lawsuits against them); Press Release, FTC, Federal and State 
Agencies Target Mortgage Relief Scams (Nov. 24, 2009) (announcing 
118 actions by 26 federal and state agencies), available at https://www.ftc.gov/opa/2009/11/stolenhope.shtm; Press Release, FTC, Federal 
and State Agencies Target Mortgage Foreclosure Rescue and Loan 
Modification Scams (July 15, 2009) (announcing operation involving 
189 actions by 25 federal and state agencies), available at https://www.ftc.gov/opa/2009/07/loanlies.shtm; Press Release, Financial 
Fraud Enforcement Task Force, Financial Fraud Enforcement Task Force 
Announces Results of Broadest Mortgage Fraud Sweep in History (June 
17, 2010), available at https://www.stopfraud.gov/news/news-06172010-02.html.
    \63\ See infra notes 92-96 and accompanying text.
    \64\ See, e.g., LFSV at 1 (``During the recent mortgage crisis, 
we have been dealing with a flood of borrowers whose mortgages are 
distressed and who have been subject to abuses by companies and 
individuals promising assistance with obtaining modification of 
those loans.'')
    \65\ See Consumer Fed'n of Am. et al., 2009 Consumer Complaint 
Survey Report 3 (July 27, 2010), available at https://www.consumerfed.org/elements/www.consumerfed.org/File/Consumer_Complaint_Survey_Report2009.pdf.
---------------------------------------------------------------------------

    MARS providers commonly initiate contact with prospective customers 
through Internet, radio, television, or direct mail advertising.\66\ 
Although MARS providers did not submit information for the record 
relating to the extent and cost of their marketing efforts, they appear 
to use a variety of media to target large numbers of consumers who are 
struggling to pay their mortgages. For example, one MARS provider that 
was the subject of an FTC enforcement action spent $9 million in one 
year to broadcast deceptive advertisements nationwide on major 
television and cable networks, as well as on radio stations and the 
Internet.\67\ Typical MARS advertisements instruct consumers to call a 
toll-free telephone number or to e-mail the provider. One provider's 
advertisements allegedly yielded 1,500 inbound calls per day.\68\ 
Another such provider disseminating direct mail advertisements reported 
receiving approximately 500 inbound calls per day.\69\
---------------------------------------------------------------------------

    \66\ The FTC procured information from a media monitoring 
company on the occurrence of broadcast advertising for MARS. The 
company located 68 radio ads and 71 television and cable ads 
containing the terms ``save your home,'' ``mortgage modification,'' 
or ``loan modification.'' These ads aired between the dates of 
September 1, 2008 and September 1, 2010. These ads were attributable 
to 139 different companies.
    \67\ See FTC v. Fed. Loan Modification Law Ctr., LLP, No. 
SACV09-401 CJC (MLGx), Mem. Supp. Ex Parte TRO at 6-7 (C.D. Cal. 
filed Apr. 6, 2009).
    \68\ Id. at 6-8.
    \69\ See FTC v. Loss Mitigation Servs., Inc., No. SACV-09-800 
DOC (ANX), Mem. Supp. TRO at 7 (C.D. Cal filed Jul. 13, 2009).
---------------------------------------------------------------------------

    Customary representations in the ads and ensuing telemarketing and 
email pitches claim that the MARS provider (1) will obtain for the 
consumer a substantial reduction in a mortgage loan's interest rate, 
principal amount, or monthly payments; (2) will achieve these results 
within a specific period of time; \70\ (3) has special relationships

[[Page 75097]]

with lenders and servicers; \71\ and (4) is closely affiliated with the 
government,\72\ nonprofit programs,\73\ or the consumer's lender or 
servicer.\74\ Providers also commonly represent that there is a high 
likelihood, and in some instances a ``guarantee,'' of success.\75\ Many 
MARS providers do not disclose to consumers in their promotions the 
cost of their services.\76\ In some cases, MARS providers entice 
consumers to make substantial up-front payments with false claims that 
they will be able to obtain a refund if consumers do not receive an 
acceptable result.\77\
---------------------------------------------------------------------------

    \70\ See, e.g., FTC v. First Universal Lending, LLC, No. 09-CV-
82322, Mem. Supp. TRO at 4-5 (S.D. Fla. filed Nov. 24, 2009); FTC v. 
1st Guar. Mortgage Corp., No. 09-DV-61846 (S.D. Fla. filed Nov. 17, 
2009); FTC v. Freedom Foreclosure Prevention Specialists, LLC, No. 
2:09-cv-01167-FJM (D. Ariz. filed June 1, 2009); FTC v. Fed. Loan 
Modification Law Ctr., LLP, No. SACV09-401 CJC (MLGx) (C.D. Cal. 
filed Apr. 3, 2009).
    \71\ See, e.g., FTC v. Debt Advocacy Ctr., LLC, No. 1:09CV2712 
(N.D. Ohio filed Nov. 19, 2009); FTC v. 1st Guar. Mortgage Corp., 
No. 09-DV-61846 (S.D. Fla filed Nov. 17, 2009); FTC v. 
LucasLawCenter ``Inc.,'' No. SACV-09-770 DOC (ANX) (C.D. Cal. filed 
July 7, 2009); FTC v. US Foreclosure Relief Corp., No. SACVF09-768 
JVS (MGX) (C.D. Cal. filed July 7, 2009).
    \72\ See, e.g., FTC v. Dominant Leads, LLC, No. 1:10-cv-00997 
(D.D.C. filed June 16, 2010) (alleging that defendants' Web sites 
featured official government seals and logos, and deceptively 
appeared to be affiliated with the government); FTC v. Washington 
Data Res., Inc., No. 8:08-cv-02309-SDM-TBM (M.D. Fla. filed Nov. 12, 
2009) (alleging that defendants falsely represented that they were 
affiliated with the United States government); FTC v. Fed. Housing 
Modification Dep't, No. 09-CV-01753 (D.D.C. filed Sept. 15, 2009); 
FTC v. Sean Cantkier, No. 1:09-cv-00894 (D.D.C. filed July 10, 2009) 
(alleging defendants placed advertisements on Internet search 
engines that refer consumers to Web sites that deceptively appear to 
be affiliated with government loan modification programs); FTC v. 
Thomas Ryan, No. 1:09-00535 (HHK) (D.D.C. filed Mar. 25, 2009); FTC 
v. Fed. Loan Modification Law Ctr., LLP, No. SACV09-401 CJC (MLGx) 
(C.D. Cal. filed Apr. 3, 2009) (charging defendant with 
misrepresenting that it is part of or affiliated with the federal 
government); see also LOLLAF at 2 (``Other clients have been 
deceived into believing the MARS provider will assist them because 
it claimed to be a `non-profit,' used a government symbol or claimed 
to be affiliated with the HOPE hotline.''); OH AG (ANPR) at 4 (``Our 
office has seen many companies that have names or advertisements 
that make it sound like they are government sponsored.''); NCLC 
(ANPR) at 3 (``One website, USHUD.com, even claims to be `America's 
Only Free Foreclosure Resource' even though HUD-certified agencies 
also offer free assistance regardless of income.'').
    \73\ See FTC v. New Hope Prop. LLC, No. 1:90-cv-01203-JBS-JS 
(D.N.J. filed Mar. 17, 2009); FTC v. New Hope Modifications, LLC, 
No.1:09-cv-01204-JBS-JS (D.N.J. filed Mar. 17, 2009).
    \74\ See, e.g., FTC v. Kirkland Young, LLC, No. 09-23507 (S.D. 
Fla. filed Nov. 18, 2009) (alleging that defendants falsely 
represented an affiliation with borrowers' lenders); FTC v. Loss 
Mitigation Servs., Inc., No. SACV-09-800 DOC (ANX) (C.D. Cal. filed 
July 13, 2009) (alleging that defendants deceptively claimed 
affiliation with consumers' lenders); see also Am. Bankers Ass'n 
(ANPR) at 7 (``They often misuse the intellectual property of 
lenders and servicers by claiming in mailings, on Web sites, and in 
other communications that they either are affiliated with the 
lenders and servicers or have special relationships with them that 
do not exist. They use the names, trademarks and logos of these 
lenders and servicers in their advertising to deceive consumers into 
believing they can obtain modification relief for them that these 
consumers could not otherwise obtain for themselves at no cost.''); 
Chase (ANPR) at 3 (``These MARS entities also may lead the borrower 
to believe that they are associated with the servicer or that they 
have special agreements with the servicer for processing loan 
modifications, when, in fact, they do not.'').
    \75\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging defendants 
falsely claimed success rate of 97 to 100%); FTC v. Debt Advocacy 
Ctr., LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009) (alleging 
defendants falsely claimed a 90% success rate); FTC v. Loss 
Mitigation Servs., Inc., No. SACV09-800 DOC (ANX) (C.D. Cal. filed 
July 13, 2009) (alleging ``[d]efendants have told homeowners that 
their success rate is above ninety percent''); FTC v. LucasLawCenter 
``Inc.,'' No. SACV-09-770 DOC (ANX) (C.D. Cal. filed July 7, 2009) 
(alleging ``[d]efendants' representatives tell consumers that 
Defendants have a success rate in the ninetieth percentile with 
their lender''); FTC v. Freedom Foreclosure Prevention Specialists, 
LLC, No. 2:09-cv-01167-FJM (D. Ariz. filed June 1, 2009) (alleging 
defendants claimed to have 97% success rate); FTC v. Data Med. 
Capital Inc., No. SA-CV-99-1266 AHS (Eex), Mem. Supp. App. Contempt 
at 8 (C.D. Cal. filed May 27, 2009) (alleging defendants represented 
100% success rate to consumers).
    The Loan Modification Scam Prevention Network (LMSPN)--a 
coalition of Federal and state organizations led by the Lawyers' 
Committee for Civil Rights--has created a nationwide complaint 
reporting system for loan modification fraud. The Network, formed in 
February 2010, has received complaints through a variety of 
channels, including a form posted on its Web site, the Homeowners' 
Hope Hotline, and referrals from non-profit housing counselors. As 
of August 25, 2010, the LMSPN database contained a total of 6,473 
complaints of loan modification fraud, dating as far back as April 
8, 2008. FTC staff reviewed a random sample of 100 of these 
complaints and found that 63 reported that MARS providers had 
guaranteed consumers loan modifications. In projecting this finding 
to the entire LMSPN database, the FTC estimates that between 52% and 
72% of the complaints report the same information.
    \76\ In a recent report summarizing the results of undercover 
calls made to MARS providers, the National Community Reinvestment 
Coalition (NCRC) found that in 54% of the calls the providers did 
not inform consumers about their fees. See NCRC, Foreclosure Rescue 
Scams: A Nightmare Complicating the American Dream, at 21 (Mar. 
2010) (``NCRC Report''), available at https://www.ncrc.org/images/stories/pdf/research/foreclosure%20rescue%20scams%20-%20%20nightmare%20complicating%20the%20american%20dream.pdf.
    \77\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendant 
falsely claimed to provide ``100% money back guarantee''); Debt 
Advocacy Ctr., LLC, No. 1:09CV2712 (N.D. Ohio filed Nov. 19, 2009) 
(alleging that defendants falsely represented they will refund 
borrower fee if unsuccessful); FTC v. Infinity Group Servs., No. 
SACV09-00977 DOC (MLGx) (C.D. Cal. filed Aug. 26, 2009); FTC v. Loan 
Modification Shop, Inc., No. 3:09-cv-00798 (JAP), Mem. Supp. TRO at 
1 (D.N.J. amended complaint filed Aug. 4, 2009) (alleging defendants 
represented that advance fees were fully refundable); FTC v. Freedom 
Foreclosure Prevention Specialists, LLC, No. 2:09-cv-01167-FJM (D. 
Ariz. June 1, 2009) (alleging defendants promised ``100% money-back 
guarantee'' but then failed to provide refunds); see also NAAG at 2 
(``[MARS providers] generally ignore their own refund policies. In 
the vast majority of complaints received by our offices, consumers 
were unable to get refunds even though the consultants performed 
little or no work and had promised consumers money-back guarantees. 
In some cases, the companies had closed or changed locations by the 
time the consumers discovered there was a problem, thereby 
preventing the consumers from even requesting a refund.''); see 
also, e.g., FTC v. Home Assure, LLC, No. 8:09-CV-00547-T-23T-Sm, 
Mot. S.J., App.1 at 6 (M.D. Fla. filed Jan. 25, 2010) (Expert Report 
of Dr. Kivetz survey reporting that 56% of consumers requested that 
defendant provide a refund; 65% of those who requested a refund did 
so because defendant failed to perform its services; but only 12% of 
consumers who requested refunds received them).
---------------------------------------------------------------------------

    Based on the FTC's law enforcement experience, the public comments, 
and consumer complaints, it appears that the vast majority of consumers 
do not receive the results MARS providers promise.\78\ After collecting 
their up-front fees, MARS providers often fail to make initial contact 
with the consumer's lender or servicer for months, if at all, or to 
have substantive discussions or negotiations with the lender or 
servicer.\79\ In many cases, MARS providers fail to perform even the 
most basic promised services or achieve any beneficial results.
---------------------------------------------------------------------------

    \78\ See, e.g., infra Section III.E.2.a.; LOLLAF at 1 (``We have 
worked with many homeowners who have paid money to a Mortgage 
Assistant Relief Services (MARS) provider, only to discover that 
they received absolutely no service in exchange for the fee.''); CMC 
(ANPR) at 1 (``CMC members and other mortgage servicers found that 
MARS providers consistently misrepresent their ability to obtain 
concessions from servicers * * *.''); Chase (ANPR) at 3 (``They 
collect their fees up-front and promise the borrower they can get a 
loan modification or other foreclosure relief, when, in fact, this 
is only a determination that the servicer can make after reviewing 
the borrower's financial information and investor agreements.'').
    \79\ See, e.g., FTC v. Truman Foreclosure Assistance, LLC, No. 
09-23543 (S.D. Fla. filed Nov. 23, 2009) (alleging that defendant 
often failed to return borrowers' phone calls and failed to contact 
and negotiate with lenders); FTC v. Apply2Save, Inc., No. 2:09-cv-
00345-EJL-CWD (D. Idaho filed July 14, 2009) (complaint alleging 
that ``[m]any consumers learned from their lenders that Defendants 
had not even contacted the lender or that Defendants had only 
minimal, non-substantive contact with the lender''); FTC v. Loss 
Mitigation Servs., Inc., No. SACV09-800 DOC (ANX) (C.D. Cal. filed 
July 13, 2009) (alleging that ``[d]efendants have misrepresented 
that negotiations were underway, although Defendants had not yet 
contacted the lender''); FTC v. LucasLawCenter ``Inc.'', No. SACV-
09-770 DOC (ANX), Mem. Supp. TRO at 19 (C.D. Cal. filed July 7, 
2009) (alleging that consumers who contact their lenders ``learn 
that [Defendant] never even contacted the lender, or merely verified 
the consumer's loan information''); FTC v. Freedom Foreclosure 
Prevention Specialists, LLC, No. 2:09-cv-01167-FJM (D. Ariz. June 1, 
2009) (alleging that defendants failed to act on homeowners' cases 
for more than four to six weeks without completing--or in some 
cases, even starting--negotiations and ``failed to return consumers' 
repeated telephone calls, even when homeowners were on the brink of 
foreclosure'').
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    In some cases, providers also cause harm to consumers by 
instructing them to stop communicating with their lenders and 
servicers.\80\ Consumers who

[[Page 75098]]

sever contact with lenders and servicers unwittingly diminish their 
ability to learn that their MARS provider is doing little or nothing on 
their behalf. These consumers may never learn of concessions their 
lende