The Federal Trade Commission and the Federal Reserve have teamed up to ban one of the most despicable practices of fake home refinance brokers: advance fees. According to consumer protection experts at the Federal Reserve, advance fees almost always signal a fly-by-night operation that exists solely to collect cash from homeowners without ever closing a real deal to save property from foreclosure.
The FTC calls their new policy MARS: the Mortgage Assistance Relief Services Rule. Under the new rule, home refinance companies cannot pretend to broker funds from a "government bailout" of private mortgage companies. They can't make any specific claims about the amount of money they could save homeowners. And in one of the most important changes to government policy, the brokers can no longer claim a "special relationship" with named lenders.
Government prosecutors have pursued hundreds of cases in which homeowners, unable to qualify for low refinance rates, contracted with mortgage assistance companies to negotiate loan modifications.
While some of the companies legitimately attempted to work out deals with mortgage lenders on behalf of homeowners, others did not. The firms under investigation often advised customers to cease communication with lenders, direct future mortgage payments to their offices instead and to avoid reviewing foreclosure documentation from state and federal authorities.
As a result of this, hundreds or even thousands of homeowners face foreclosures that could have been avoided with better advice.
Seeking home refinance deals the right way
Under significant government and shareholder pressure, major banks have grown more receptive to home refinance deals in the past few months. Despite the lingering effects of recession in many parts of the United States, many lenders now have the ability to cut deals using today's mortgage rates. If you're significantly underwater on your mortgage, negotiating a deal with your existing lender may still be your best option.
If you're in one of the parts of the country where real estate values have stabilized, you may be able to pursue a more traditional home refinance deal. Instead of worrying about whether some of your equity has evaporated, remember that we're still in a period of record low mortgage rates. Losing a little equity now pales in comparison to the amount of money you might save over the next thirty years in a fixed-rate mortgage.
If you can afford slightly higher payments, you may be able to take advantage of unprecedented deals that could have your home paid off completely within fifteen years. Shop rates now, while the new rules have thrown potential scammers off their game.