New rules take effect to protect against mortgage scamsby Jessica Mador, Minnesota Public Radio
St. Paul, Minn. — New Federal Trade Commission rules aimed at protecting homeowners from mortgage scams take effect this week.
The new Mortgage Assistance Relief Services Rule bars companies from making false promises about mortgage modification help. Beginning Jan. 31, 2010, companies will also be prohibited from charging up-front fees for services.
The new federal rules also require more disclosure from loan modification companies. Ed Nelson with the Minnesota Home Ownership Center says the new rules are needed to protect consumers from fraudulent companies which sometimes charge several thousand dollars for services that are available for free.
Nelson says the companies also must disclose that if people stop payments on a loan, they may lose their home and damage their credit.
"The rules changes now say that these foreclosure rescue organizations cannot charge an upfront fee, and they must disclose these things that have been outlined in the rules," said Nelson.
The new rules are similar to Minnesota state laws, which currently ban loan modification companies from charging up-front fees.
Struggling homeowners can get free help with mortgage modifications by contacting non-profit foreclosure prevention counselors.