The Homeownership Preservation Foundation has found that nearly half the victims of mortgage loan modification scams were either of African-American, Hispanic or Asian background.
“Repeated studies have shown that minorities were disproportionately targeted for predatory lending during the housing boom, and we have compelling evidence indicating that minorities are bearing the brunt of an unusually high percentage of mortgage scams,” said Colleen Hernandez, CEO of the Homeownership Preservation Foundation, a national nonprofit dedicated to helping distressed homeowners who have financial challenges avoid foreclosure.
Since starting a distressed homeowners hotline in February 2010 for individuals who believe they have been victimized by some type of fraudulent scam, approximately half of the incoming calls were from people of ethnic backgrounds who voluntarily identified themselves either as an African-American, Hispanic or Asian.
California accounted for 22% of reported possible foreclosure rescue scams, HPF said. Florida was the second highest with 7%, followed by Texas and New York at 5% and Georgia at 4%.
Miami was the highest rated city for reported scams, followed by Los Angeles, Las Vegas, Houston and Chicago.
“Although California was among the states most hard hit by the housing crisis, the reported foreclosure rescue scam activity seems disproportionately higher than we would have expected,” Hernandez said. “It’s also surprising that the scam activity is so widely dispersed rather than concentrated in areas or regions with the highest foreclosure rates.”
Despite the Federal Trade Commission establishing a rule in February that prohibits lenders from issuing payments of upfront fees to negotiate a reduction in mortgage payments on behalf of the borrower, companies continue to violate the rule. The average upfront fee is more than $2,500 to modify a mortgage and in many of these instances, no mortgage reduction even took place.
Hernandez said individuals who run these businesses were initially responsible for facilitating high mortgage loans during the housing bubble.
“They profited on the front end and now they are seeking to cash in on the back end,” Hernandez said.
Another problem for distressed borrowers is that the 2011 budget that was recently enacted removes all $88 million of federal funding for housing counseling.
“Being scammed out of thousands of dollars is often a knockout punch for already distressed homeowners,” Hernandez said. “Reducing funding for counseling would be tantamount to giving foreclosure rescue scam artists a major subsidy as they will be able to operate virtually unfettered.”
