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FTC rule cracks down on mortgage relief firms

A new Federal Trade Commission (FTC) rule is aimed at cracking down on mortgage relief companies that make use deceptive practices. Some homeowners who are struggling financially have become victims of various mortgage relief scams that have proliferated during the housing crisis.

No advance fees for mortgage relief

The FTC rule makes it illegal for firms offering help with mortgage loans to collect advance fees before any services have been provided. Some companies that offer foreclosure rescue or loan modifications services have required homeowners seeking assistance to pay large sums of money upfront without delivering on their promises. Some of the companies claim that they are affiliated with the government and government programs that offer housing assistance.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said in a statement. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

Documentation before collecting money

Now mortgage relief companies must provide written proof that a mortgage lender or servicer has agreed to make changes to a mortgage loan before any fees can be collected. Companies that offer help with mortgages also must inform consumers that they have the right to turn down an offer without paying any fees.

Mortgage relief firms also must disclose to consumers that:

  • They are not affiliated with or approved by the government
  • They are not affiliated with or approved by mortgage lenders
  • Mortgage lenders may not agree to modify home loans
  • If they tell customers to stop making payments on a mortgage, that they could lose their home and damage their credit

False claims about help with home mortgages

Mortgage relief companies also must refrain from making false claims about their services. Among those false claims are those that about the likelihood that customers will get the results they want, refund and cancellation policies, whether the company provides legal representation for consumers, and the amount of money a homeowner will save using the company’s services. The FTC rule also prohibits mortgage relief firms from telling consumers to stop communicating with their mortgage lenders or loan servicers.

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