The Massachusetts Division of Banks has issued an industry letter focused on aiding distressed homeowners by restricting fees charged in connection with loan modifications. 

The letter clarifies that mortgage brokers licensed by the division may not charge borrowers a fee or receive any compensation from any source for assisting in the process of obtaining a loan modification from a borrower’s mortgage holder. The letter further explains that any fees charged by the borrower’s mortgage holder to revise the particular terms of a mortgage loan are strictly limited in scope and amount under state law.

The division said it has recently seen an increase in companies aggressively marketing their services with claims to help consumers avoid foreclosure or negotiate a loan modification at substantial additional costs to consumers.

"Consumers should contact their mortgage lender or servicer directly to work out a loan modification or contact a nonprofit agency who will offer assistance without additional cost," said Steven L. Antonakes, the commissioner of the Division of Banks.

In supporting the division’s actions, Attorney General Martha Coakley said, "Our office has observed a new business model that preys on distressed homeowners, claiming to help obtain loan modifications from lenders for a significant fee. In just the past two weeks, our Consumer Protection Division has brought two enforcement actions and obtained injunctions that prohibit companies from charging advance fees for loan modifications and bar false advertising that promises loan modification results.  We will continue to make this a priority." 

Both cases, against "Loan Mods By Lawyers" and the "Loan Modification Group" are pending in Suffolk Superior Court.

The Attorney General’s 2007 regulation prohibits foreclosure-rescue schemes and also prohibits a company from charging certain fees in connection with foreclosure-related services, including providing assistance with obtaining a loan modification on behalf of a borrower.