California's governor is considering a bill that will regulate the loan modification business. The bill was designed to ban the collection of advance fees to modify loans, which has been the source of many scams.
The bill, AB 764 was introduced by 35th District Assembly Member Pedro Nava. Aside from banning advanced payments for modifications, it requires the modification to be complete before homeowners can pay for services.
A loan modification is a process in which counselors help homeowners negotiate lower interest rates and/or lower loan amounts to prevent foreclosure. Authorities in San Diego and across the country have warned of individuals who can charge desperate homeowners up to $5,000 or more in advanced fees to modify loans without results.
The bill also requires people handling loan modifications to disclose to homeowners that modification services are available for free with loan counselors certified by the U.S. Government's Department of Housing and Urban Development (HUD).
"HUD-certified counselors will help homeowners with loan modifications only if it is for their primary residence. For those who want to modify loans on their investment properties, they can go to nongovernment counselors," said Vino Pajanor, executive director of the Housing Opportunities Collaborative in San Diego.
Pajanor supports the bill. He said it will require counselors to be successful with modifications before collecting money, not just making an attempt.
"Even when they provide the loan-modification service to the homeowner, they are not supposed to collect the money until and unless there is a loan modification done," he said.
The bill also seeks to ban false and misleading advertising, requiring all ads to be reviewed by the real estate commissioner, and it raises fines for violations and requires that loan modifications be performed by individuals with a real estate broker's license.
The California Bar Association and the Consumer's Union have endorsed the bill. Among its critics are some attorneys who say the bill will cut many people out of the business.
Meanwhile, the Housing Opportunities Collaborative will hold its 50th home loan clinic on Oct. 3 from 9 a.m. to 3 p.m. It will be held at the Calvary Chapel of San Diego, at 1771 East Palomar St., Chula Vista, CA 91913. Home loan counselors, attorneys and credit counselors will be available free of charge.