Regulators crack down on mortgage counseling firms

Federal and state officials on Wednesday filed lawsuits accusing dozens of companies of ripping off struggling homeowners by falsely promising help in avoiding foreclosures or lowering mortgage payments while collecting millions of dollars in illegal upfront fees.

Also participating in the crackdown were the Federal Trade Commission, which filed six lawsuits, and officials from 15 states, including Kansas, Florida, Illinois and New York. Missouri was not part of the state review.

The actions came in a joint law enforcement sweep called Operation Mis-Modification, which targeted law firms and counseling services offering assistance in modifying mortgage terms and payments.

Consumer advocates have long warned that payday lenders purposely try to lure borrowers into an expensive and debilitating cycle of debt. Now the nation’s consumer financial watchdog says it has proof.

Some firms misrepresented their services, including promising legal assistance that was never delivered, officials said.

The suits also said the companies violated a federal law prohibiting the collection of fees from homeowners until they have received a written modification offer from their lender or mortgage servicer.

The Consumer Financial Protection Bureau said three suits it filed against eight companies and their owners involved scams that cost homeowners more than $25 million in illegal upfront fees for services such as renegotiating mortgages or preventing foreclosures.

“These companies pocketed illegal fees, taking millions of hard-earned dollars from distressed consumers, and then left those consumers worse off than they began,” said Richard Cordray, the bureau’s director. “These practices are not only illegal, they are reprehensible.”

This story was originally published July 24, 2014 at 1:00 AM with the headline "Regulators crack down on mortgage counseling firms."