Federal mortgage fraud crackdown follows projected 300 percent increase in mortgage fraud

The feds are out to get outlaw mortgage modification mavericks and foreclosure frauds as home loan rip-offs remain as easy a con as ever, even in hard times. Here's the skinny for consumers looking to avoid getting themselves and their homes taken.

• Get the full story on the Mortgage Modification Maze. Also see Deadline Newsroom's exhaustive coverage of Mortgage Fraud.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Apparently, even in hard times, mortgage fraud remains an easy con.

The number of Suspicious Activity Reports (SARs) for mortgage fraud tracked by the Federal Bureau of Investigation could skyrocket by nearly 300 percent this year.

Compared to 2007, mortgage fraud SARs in 2008 had already increased by more than 36 percent to 63,000. But just two months into 2009, the FBI has already documented nearly 29,000 mortgage fraud SARs. At that rate, some 174,000 SARs -- a 276 percent increase -- could be filed by the end of the year.

And that's only what the FBI can see.

"Many mortgage finance-related entities are either loosely or completely unregulated at the state or federal level," said FBI Director Robert Mueller in recent testimony before the U.S. Senate Appropriations panel.

The good news?

"The current financial crisis has produced an unexpected consequence. They have helped reveal numerous mortgage fraud schemes, Ponzi schemes, and investment frauds, such as the Bernard Madoff scam," Mueller testified.

But while the Feds are catching up with Wall Street crooks, struggling homeowners on Main Street remain common prey. Despite tougher lending standards putting the kibosh on some types of home loan scams, organized wise guys continue to traffic in mortgage fraud.

That's prompted the U.S. Department of the Treasury, the U.S. Department of Justice (DOJ), the Department of Housing and Urban Development (HUD), the Federal Trade Commission (FTC), and the Attorney General of Illinois to launch new initiatives to pump up fraud investigations and step up enforcement actions, especially to protect homeowners seeking relief from President Obama's Making Homes Affordable initiative.

The effort particularly targets loan modification and mortgage fraud.

• Get the full story on the Mortgage Modification Maze Also see Deadline Newsroom's exhaustive coverage of Mortgage Fraud.

Mortgage fraud, a relatively new form of organized crime, first cashed in on the greed that came with the boom market, when some buyers would do anything to own a home -- including lie on the application. Cons, often insiders, also falsified documents, inflated appraisals and used other underhanded techniques to get home loans approved and properties flipped for a hefty profit when appreciation was skyrocketing.

With the housing market bust, however, came stricter underwriting scrutiny which helped stem the tide of loans approved with fabricated information.

Now, mortgage fraud is taking advantage of vulnerable, gullible homeowners facing foreclosure. Like those who once fibbed to cash in on the booming market, many struggling homeowners are likewise willing to do anything to remain homeowners.

Mueller said today's host of sophisticated scams are associated with new loan modification services, foreclosure bailouts, equity grabs, bankruptcy, identity theft and property flipping, among others.

Bruce Hahn, president of the American Homeowners Foundation, a non-profit advocacy group in Washington, D.C. says it's tough to tell the good guys from the bad.

"Some loan modification services are competent, but some are incompetent and there is another group of people who post ads to help with mortgage problems, but are basically fraudsters and fronts," Hahn said.

The FTC recently surveyed online and print advertising for mortgage foreclosure rescue operations nationwide and identified approximately 71 distinct companies running suspicious ads.

It's clear homeowners, who want to avoid being taken by the new scammers must likewise become more sophisticated.

• Get the full story on the Mortgage Modification Maze Also see Deadline Newsroom's exhaustive coverage of Mortgage Fraud.

The experts advise:

• Don't be a rube. If it sounds too good to be true -- it probably is. Debts, bad credit and other financial holes didn't appear over night. They won't magically disappear over night.

"A fair number of homeowners have actually paid someone money before they see us. They see us because they paid and the company didn't do anything for them," said Martin Eichner, director of housing counseling services at the Sunnyvale, CA office of Project Sentinel.

• Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques. Avoid spam come-ons and web-based advertisements promoting the elimination of mortgage loans for an up-front fee to prepare documents to satisfy the debt. Beware of offers to "save" you from defaulting on loan payments or from foreclosure.

"The most outrageous of these schemes are offers to take your mortgage payment and hold them for you in a trust account. That is a total rip off. Never give your mortgage payment to any third party," Eichner said.

• Attempts to cajole you into making false statements in the name of mortgage relief is a red flag. Likewise don't sign blank documents or those you don't understand.

• Seek out family, friends, co-workers and others you trust who recently successfully solved a mortgage problem. Ask them for referrals. That applies to loan modifications, work outs, restructuring and refinance efforts.

"I would say contact a U.S. Department of Housing and Urban Development, but you can't just say that. We can't help everybody who needs help (because of overwhelming demand). If you hire a for-profit service you should be paying money only if (and after) they are successful. If they are an attorney, contact the state bar. For mortgage brokers (and real estate agents) check with the California Department of Real Estate.

Hahn also says to contact city and county housing offices for assistance and referrals and the latest information on legal, government-sponsored assistance.

Get the full story on the Mortgage Modification Maze for more help avoiding the scams.

Also see Deadline Newsroom's exhaustive coverage of Mortgage Fraud.


© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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