Mortgage fraud is a problem that servicers and lenders have dealt with for a long time and it does not seem to be going away anytime soon as fraudsters always seem to be one step ahead in knowing how to take advantage of companies as well as distressed borrowers.
According to the FBI, more than 20% of all mortgage fraud cases involve distressed homeowner fraud. Just two years ago, that number was less than 4%.
Some of the most common types of mortgage fraud affecting borrowers who are at risk of foreclosure are loan modification scams and foreclosure rescue tactics that include phony counseling sessions.
Michael Stolworthy, special agent in charge at the Department of Housing and Urban Development’s Office of the Inspector General, explained at the Mortgage Bankers Association’s National Fraud Issues 2013 Conference in Hollywood, Fla., what current homeowners and distressed borrowers can do to prevent themselves from becoming potential victims.
First, he said if a company asks for money in advance, don’t trust them. Also, any company that says they can offer guaranteed results is not telling the truth. Another tip Stolworthy advises consumers to be aware of is the trend where fraudsters tell homeowners to stop paying their mortgage payments to a lender and send the money to them instead. Lastly, he stated that anybody who asks a borrower to hand over their deed is not trustworthy.
“The best thing a borrower can do is keep an open line of communication with their lender, as they all want to help a borrower make their payments,” Stolworthy said.
From Oct. 1, 2011 to Sept. 30, 2012, the Distressed Homeowner Initiative—a national program launched by the FBI to target fraud schemes that prey upon suffering homeowners—has resulted in 530 criminal defendants charged, including 172 executives, and 285 federal criminal indictments filed in U.S. District Courts.
These cases involved more than 73,000 homeowner victims and total losses for these consumers estimated by law enforcement at more than $1 billion.
A foreclosure rescue scheme targets homeowners who have fallen behind on their mortgage payments in which the con artist promises the borrower to prevent a foreclosure from happening for a fee.
Another scam fraudsters are currently using against distressed borrowers are loan modification schemes where perpetrators assure consumers that they have the ability to negotiate more favorable mortgage terms with a lender. However, the only way for this to happen is if a consumer pays an advance fee.
Meanwhile, while the distressed borrowers wait for the promised relief from the fraudsters, homeowners not only lose their money but often fall deeper into default and lose valuable time to speak with a mortgage lender.
Christa Lynn Greco, intelligence analyst of the financial crimes intelligence unit for the FBI, said the upfront fee for a loan modification scam could range from $200 to $500 to obtain such services.
“One red flag a consumer should know is to be aware of anyone who wants to charge you in advance for mortgage services. In most cases, charging advance fees for mortgage modification is illegal as the Mortgage Assistance Relief Service Rule banned this,” Greco added. “Homeowners should also be on the lookout for companies that say you can’t obtain a loan modification on your own, or that banks won’t work with you, which is not the case.”
Due to all of the distressed homeowner fraud happening throughout the country, a coordinated national campaign called the Loan Modification Scam Prevention Network was created to strengthen the fight against these scammers and support existing efforts at the national, state and local levels. The organizations who are leading the LMSPN include Fannie Mae, Freddie Mac, the Lawyers’ Committee, Homeownership Preservation Foundation, NeighborWorks America and governmental agencies such as the Federal Trade Commission, HUD and Treasury.
This new coalition includes a two-part response. First, NeighborWorks is leading a national media and outreach campaign to educate homeowners and the public on potential scams. The public is being educated about state laws as well as national regulations that fraudsters try to take advantage of unknowing consumers, according to Eileen O’Connor, counsel for the Lawyers’ Committee.
Second, the Lawyers’ Committee is leading an effort to increase reporting and prosecution of alleged scammers to support ongoing enforcement efforts at the federal, state and local levels.
Critical to shutting down scammers is increasing the number of complaints that law enforcement receives. Complaints against alleged scammers can be submitted by homeowners, housing counselors and advocates working with distressed borrowers at foreclosure prevention events via a public form on the Network’s website or through the Homeowners’ HOPE hotline.
There are several questions individuals should consider to determine whether they should file a complaint. For example, did anyone offered to help modify your mortgage? If the answer to this is yes, were you either guaranteed a loan? Asked to pay a fee? Asked to sign a contract? Asked to redirect mortgage payments? Asked to sign over title to your property? Asked to stop making loan payments? If this happened to a borrower, O’Connor advises them to submit a complaint.
O’Connor said the “hotspots” for complaints against distressed mortgage fraud is more heavily represented—either for location of the homeowner or location of the scammer—in certain states.
Through March, over 31,000 reports were reported to the Network, with California having the most with 6,102. Behind California with the most complaints was Florida which had 2,360, followed by New York (1,805), Texas (1,417), New Jersey (1,273), Georgia (1,223), Maryland (1,067), Illinois (1,066), Pennsylvania (1,004) and Massachusetts (1,223).
Furthermore, the top five states with the highest average reported loss per homeowner is California with $4,273, then New York at $3,934, South Carolina was $3,444, Illinois at $3,381 and Florida was $3,379. O’Connor said the national average reported loss was $3,095, with total losses nationwide over $72 million.
According to O’Connor, a trend fraudsters are using to “gain the trust of homeowners in order for them to hand over a fee” is attorney involvement, whether it is someone who is actually an attorney or someone who claims to be an attorney and is not.
She added that we’re also seeing for-profit entities claiming to be nonprofit status. Through this fraudulent action, scammers are hoping that consumers are more sentimental towards a nonprofit entity thinking that they must “truly be dedicated to helping homeowners.”
Another trend being utilized by scammers to trick consumers is having some sort of fake affiliation with the government such as claiming to be HUD certified housing counselors but asking for payments for any type of service.
“Any HUD-certified counselor charging you is obviously not real,” O’Connor added. “Reporting fraud is the key to stopping scammers. It is really hard to determine whether a service is legitimate or not, but a consumer should put their trust in HUD certified counselors who work directly with your bank without making you pay any fees.”
Another way the federal government is addressing the mortgage fraud crisis throughout the nation is that the Financial Fraud Enforcement Task Force’s Victims’ Rights Committee, in partnership with the Certified Financial Planning Board and the Foundation for Financial Planning, is offering pro-bono financial planning assistance to the victims of a foreclosure rescue scheme indicted by the U.S. Attorney’s Office for the Central District of California.
All 4,000 victims of the scheme, many of whom lost their homes as a result of the fraud, can receive free financial information and education to assist them in recovering from the devastating effects the crime had on their lives and to help them plan for the future. The financial planners at the workshop will be able to answer critical questions relating to tax planning, debt management, foreclosure assistance, job loss, retirement planning, investment advice, insurance, employee benefits and more.
“We recognize the negative impact that mortgage fraud and foreclosures have on our economy and on our communities. We cannot merely investigate after the fact. We must use intelligence and sophisticated techniques to identify and stop those who seek to defraud American homeowners,” said FBI Associate Deputy Director Kevin Perkins.