Feds Look to Stop Foreclosure Prevention Scams

The Obama administration has already unveiled its plan to reduce the rising home foreclosure rate, but with loan modification scams on the rise, the administration today announced a multi-agency effort to crack down on predatory home foreclosure scams that prey on distressed homeowners. “Just as this administration has intensified our efforts to help American homeowners, those who would seek to prey on the most vulnerable are intensifying their tactics as well, often through predatory loan modifications, mortgage relief scams and foreclosure prevention companies,” Treasury Secretary Tim Geithner said at an announcement in Washington. “These are predatory lending schemes designed to steal Americans of their savings and potentially their houses.” With so many delinquent borrowers, the demand for a low credit score mortgage has increased dramatically over the last few years.

Foreclosure News reported the FBI contends they are presently involved in a huge number of mortgage relief investigations more than 2,100 home loan fraud cases, up 400% from 5 years ago. Joined by state and federal officials, including Attorney General Eric Holder, Geithner unveiled new initiatives to stop these schemes. “We will shut down fraudulent companies more quickly than before,” he said. “We will target companies that otherwise would have gone unnoticed under the radar. And we will aggressively pursue individuals involved in foreclosure prevention scams.” He announced that the Treasury Department’s Financial Crimes Enforcement Network will ratchet up its efforts to identify fraud suspects for civil and criminal investigation and issue an advisory to help financial companies report questionable loss mitigation schemes for law enforcement.

Holder also contended that the FBI has more than doubled the number of agents investigating mortgage fraud cases and created a national mortgage fraud team. “The message is very simple: If you prey on vulnerable homeowners with fraudulent home loan schemes or discriminate against borrowers, we will find you and we will punish you,” he said. Holder noted that the Justice Department is hearing a growing number of concerns about discrimination by loan modification companies. “Discrimination in mortgage lending on the basis of race, national origin or other prohibited factors is destructive, it’s morally repugnant and it is against the law,” he said “If you pay them instead of your home loan company, you will find yourself on the fast track from distress to disaster,” Leibowitz said. “Stay away from anyone who says they will save your home in return for money up front,” said Illinois Attorney General Lisa Madigan.

Despite the announcement being framed as a news conference, the government officials took no questions and departed immediately after a brief series of opening remarks. The announcement was applauded by Neil Barofsky, the special inspector general for the (TARP) Troubled Asset Relief Program, who warned in February that the administration’s loan modification program could be vulnerable to illegal schemes. On Barofsky’s recommendation, the administration issued an anti-fraud release to warn homeowners about fraud and refer them to a national hot line.

Foreclosure Related News talked to several mortgage executives with lending companies and mortgage mitigation law firms. Will the mortgage relief hotlines help? Former Ditech, executive Jeff Morris said, “Well they certainly will make homeowners slow down and think before they engage in a foreclosure prevention transaction from a company that has no ability to provide loss mitigation relief.”

Jason Cardiff, president of an advertising firm that offers direct mail marketing for mortgage companies said, “Homeowners should think twice about giving any money to a loan modification company that is unable to document a solid track record of successful note modifications with the major mortgage servicing companies.” Cardiff continued, “If you need negotiating with your lender, find a law firm that refers you to their clients who have the same mortgage company as you. “Take the time to verify some of their recent modifications because the loss mitigation industry has become vulnerable to scams and predatory lending abuse.”

Shaun Donovan, secretary of the Department of Housing and Urban Development, noted that participating in President Obama’s Making Home Affordable plan is free of charge and urged distressed homeowners to go to the program’s Web site, contact one of the 2,600 HUD-approved mortgage counselors or call the HOPE hot line for help. Even, FHA home loans entered the mortgage modification arena in 2008 with the Hope for Homeowners program offering refinance or foreclosure prevention options for a select group of homeowners.

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