The unabated foreclosure crisis has spawned soaring mortgage relief scams and related complaints from consumers, according to law enforcement and consumer protection authorities.
The most telling statistic was released by the Federal Trade Commission yesterday in its annual review, which reported that nearly 1 million fraud and identity theft complaints were filed last year.
In the category of “mortgage modification and foreclosure relief,” only 1 complaint was filed in 2008. That number rocketed to 7,927 last year, the FTC said. And those likely represent a fraction of all such scams or other issues with foreclosure rescue services, since more cases than not go unreported.
In response to this wave of schemes that prey on desperate homeowners, the FTC this month proposed a new rule that would prohibit companies from charging up-front fees for mortgage modification services. Instead, companies could only collect payment after providing services.
“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.”
The FTC has taken action in at least 28 cases in the area of mortgage rescue schemes, while state and federal law enforcement teams have prosecuted hundreds more.
The cases target companies that do not provide the services they promise. And often they misrepresent their affiliation with the government’s primary mortgage relief program, Making Home Affordable, also known as Home Affordable Modification Program.
The Financial Fraud Enforcement Task Force yesterday kicked off the first of mortgage-fraud “summits” in South Florida, one of the top hubs for in the nation for mortgage schemes, and one of the hardest hit areas in the country in the foreclosure crisis.
The task force was established in November by the Obama Administration to curb financial crimes related to mortgage fraud and predatory lending practices. It is comprised of federal, state and local law enforcement agencies; and other U.S. agency officials.
Fannie Mae ranked South Florida the top spot for loan fraud last year.
In the most sophisticated of the schemes, fraudsters manipulate every facet of the lending process with bogus documents that look legitimate.
In one case prosecuted in Miami-Dade County, “the defendants flipped the properties to each other and used the money for down payments on other properties,” according to the Miami Herald.
“These are very sophisticated organized criminal activities,” Fred Gibson, deputy inspector general of the Federal Deposit Insurance Corp., told the Herald. “They re-circulate funds through transactions to appear legitimate because they know if they default too early they will get caught. When the music stops, the banks are left holding the bag.”
But by far the most common mortgage scams are those by companies that promise to reduce payments, take an upfront fee — and never deliver on the service.
Under the FTC’s proposed rule, mortgage modification companies would have to tell consumers the following:
- that they are for-profit businesses;
- the total amount consumers will have to pay;
- that neither the government nor the consumer’s lender has approved their services;
- and there is no guarantee that the lender will agree to change their loan.
Here is the FTC website for filing complaints.
See Related Article: HUD, Groups Debut Site to Fight Foreclosure Rescue Scams