The Nevada Mortgage Lending Division said Monday that it is ordering 26 residential mortgage loan modification consultant companies to close and refund unearned payments from customers.
Another 18 firms are allowed to continue working while their licenses are processed.
Law firm Frederickson, Mazeika & Grant is the only firm that has obtained a license.
The division is forcing companies to close if they failed to obtain a $75,000 surety bond required by a new state law.
The Nevada Legislature this year enacted a law requiring licenses and bonds for loan modification companies. Loan modification companies charge fees for trying to help homeowners avoid foreclosure by persuading the lender to lower the mortgage interest rate, reduce monthly payments or make other changes.
The Legislature required bonds and licensing because of reports that homeowners paid mortgage modification firms upfront for assistance, received no help and were unable to get a refund.
"We will not allow those companies who have not met their legal obligations to operate," Commissioner Joseph Waltuch said in a statement Monday. "If consumers are going to pay for loan modification assistance, they must be able to trust that there's recourse if they've been harmed in some way."
The announcement marks the end of the road for loan modification companies without bonds.
Companies that have no bonds will receive e-mails today, notifying them that they most stop operations and cancel contracts within 10 days, according to the division.
These companies must return money collected for services not yet performed to their customers, according to the division. Alternatively, the companies may arrange for another mortgage modification firm to finish the work.
Companies without bonds later may obtain bonds but will be required to restart the application process, which includes an FBI background check and a credit history review.
"It's time that the state take action and shut down some of these companies that were not operating properly," Fortress Credit Services President Ian Hirsch said.
He said he obtained his bond by Oct. 1, the original deadline. He said he paid $10,000 for the bond but later learned he could obtain the bond for less from another company.
"When you put a deadline out, it should be a deadline," Hirsch said.
Cynthia Duffy, part owner and the qualified employee for All Vegas Foreclosure Prevention, credited the mortgage division with working hard to implement the new law on loan-modification companies.
"They are struggling, and they have a lot to do," Duffy said. "They want to help us get compliant (with the regulations)."
On the other hand, many loan modification consultants have been unable to get or pay for surety bonds because they lack financial strength or have bad credit, she said. Duffy paid $3,000 for a $75,000 bond but some were quoted $15,000 for bonds.
She participated in training seminar Saturday and Sunday with 45 others in the mortgage loan modification business but realized many would be out of business within a few days.
Duffy expects to receive her license when the division processes the certification that she completed required training.
"It's been a long process," Duffy said, "and I'm glad to say we've come out the other side."
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.