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Feds stand up to mortgage scams

From the Raleigh News and Observer:

WASHINGTON — Federal and state officials are cracking down on mortgage modification scams, accusing “criminal actors” of preying on desperate borrowers caught up in the nation’s housing crisis.

Government officials said Monday that scammers are seeking to take advantage of borrowers in danger of default by charging them upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.

The frauds often involve companies with official-sounding names designed to make borrowers think they are using the Obama administration’s efforts to help modify or refinance 7 million to 9 million mortgages.

“If you are struggling to make your mortgage payment, or if you are facing foreclosure, stay away from anyone who says that they will save your home for money upfront,” Illinois Attorney General Lisa Madigan told reporters in Washington.

Officials say such operations almost always are fraudulent, and that help is available for free from government-approved housing counselors.

“These are predatory schemes designed to rob Americans of their savings and potentially their homes,” Treasury Secretary Timothy Geithner said. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”

The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements. The agency also said it filed three new complaints against Northridge, Calif.-based Federal Loan Modification Law Center, Newport Beach, Calif.-based Bailout.hud-gov.us, and Clearwater, Fla.-based Home Assure, and the operators of those companies.

Bill Anz, founding partner of Federal Loan Modification Law Center, defended his operation, saying he will offer a refund to anyone who doesn’t get a modification. About 20 percent of the 5,000 customers have received a modification so far, he said, with more in the works.

“People might not like it,” Anz said, but “realistically, the problem is so large that the private sector must step in.”

Still, Anz, who advertises on TV and radio stations, said he would be willing to changing his company’s name. He conceded the name “might be aggressive.”

Thomas Ryan, the operator of Bailout.hud-gov.us, has agreed to take the Web site down. Ryan said he still operates another site — which he would not name — that generates leads for foreclosure rescue operations. “They’re providing a legitimate service,” he said.

A federal judge last month granted the FTC’s request for a temporary restraining order against two New Jersey companies: Hope Now Modifications and New Hope Modifications. The government said the companies mimicked the Hope Now alliance, which runs the mortgage industry’s foreclosure prevention effort.

The FBI is investigating about 2,100 mortgage fraud cases, a 400 percent increase from five years ago, Attorney General Eric Holder said.

“If you prey on vulnerable homeowners with fraudulent mortgage schemes or discriminate against borrowers, we will find you and we will punish you,” Holder said.

Over the past year homeowners have been flooding state attorneys general with complaints about for-profit loan modification consultants. Roadside billboards in places like Las Vegas scream, “Save my property!” and radio ads promise “expert help.” Some companies comb property records and send mail designed to look like it is from the homeowner’s lender.

Some of those offering help are former brokers, agents and appraisers who’ve seen their previous business evaporate. But consumer advocates say the legitimate consultants are no more effective than nonprofit credit counselors who also work with lenders at no charge.

The shadiest operators, consumer advocates say, can actually force borrowers out of their homes by persuading them to sign over the title or grant power of attorney.

While not every loan modification business is fraudulent, “swimming around in those waters are a lot of sharks,” said Jim Carr, chief operating officer at the National Community Reinvestment Coalition in Washington.

Some states recently have toughened penalties for perpetrating foreclosure scams, and some prosecutors have used existing fraud statutes to bring criminal charges. But many state prosecutors have not filed criminal cases, instead proceeding with civil lawsuits.