A year-long undercover investigation by four housing organizations revealed that fraud practices are prevalent within the servicing industry as one in nine homeowners nationwide are more than 90 days behind in their mortgage payments.
The National Fair Housing Alliance, Connecticut Fair Housing Center, Housing Opportunities Made Equal of Virginia Inc. and the Miami Valley Fair Housing Center issued a report called, “Have I Got a Deal for You! An Undercover Investigation of Mortgage Loan Modification Scams,” which documents the tactics mortgage modification scammers use to take money from vulnerable homeowners.
The report examined 80 loan modification companies throughout the country and found that 55% of the scammers enticed homeowners to use their services by requiring them to pay an upfront fee to start work or required a low initial fee to conduct minimal work, such as reviewing loan documents.
Another highlight from the report was that 43% of the companies guaranteed or promised the homeowner that they could secure a loan modification even before learning about the homeowners’ financial limitations.
The report also revealed that 24% of the loan modification companies advised homeowners to stop making their mortgage payments or to no longer contact their lenders, 16% guaranteed a new and lower interest rate that ranged between 2% and 6% on modified loans, 12% discouraged homeowners from seeking free help from government approved housing counseling agencies, and 8% encouraged homeowners to provide fraudulent information to their lenders.
Investigators working for the housing organizations heard scammers use phrases such as, “I’d be breaking the law if I told you to stop paying your mortgage, but friend-to-friend, you won’t get a loan modification until you are behind on your mortgage.” Another fraudster said to a homeowner, “If you don’t qualify, we modify expenses for you. They [the lenders] don’t check it. No one knows what you spend on groceries. We make you qualify by playing with the numbers.”
The majority of the companies investigated in this report were located in California or Florida, but are doing business nationwide.
“This is shameful abuse by loan modification scammers to take advantage of desperate homeowners,” said Shanna Smith, president and CEO of NFHA. “We and our partner organizations will work to see to it that these companies are prosecuted by the Federal Trade Commission and other federal and state enforcement agencies.”
