The US Federal Trade Commission said companies specializing in helping struggling home owners negotiate new loan terms with lends will not longer be able to require upfront payments.
The new rules came on Friday as many of the mortgage loan and foreclosure assistance companies are being accused of taking money from struggling home owners and giving them very little help in return.
The companies will be blocked from asking for any money until home owners get an offer in writing from their mortgage lender or other mortgage service company that the homeowner agrees to accept.
“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 homeowners without ever delivering results,” said FTC Chairman Jon Leibowitz in a statement.
The FTC has filed more than 30 cases against the companies, which it says often agrees to work with lenders on behalf of home owners and then does little or not work to help.
A report released in June by the Government Accountability Office found home owners were frequently being conned out of thousands of dollars.
Estimates for how many people have been targeted by such schemes are not available or known to the FTC or GAO, but the GAO’s report did note that half of the nation’s FBI field offices have reported the frauds as being “prevalent” and many more offices said they were seeing a growing number of cases reported.
The new rules also set more disclosure guidelines, such as explaining to customers that the company is not connected to the government and that its services are not done with the approval of their mortgage lender.
The companies also cannot give overly optimistic predictions about their ability to help home owners negotiate with lenders.
“In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers,” the FTC said in a statement.