Feds take gloves off to fight flood of mortgage scammers

It may be a bit like putting the proverbial finger in the dike at this point but the group of government agencies tasked with enforcing laws and dispensing justice today gathered themselves up and issued marching orders for a war on all manner of mortgage scams and online frauds.

How big is the problem? The FTC recently surveyed online and print advertising for mortgage foreclosure rescue operations nationwide and identified approximately 71 distinct companies running suspicious ads.  The Treasury Department's Financial Crimes Enforcement Network (FinCEN) also conducted studies on mortgage fraud that found that between July 2002 and June 2008, depository institutions filed nearly 180,000 mortgage fraud suspicious activity reports, with those involved in mortgage fraud often involved in other types of crime as well.

On top of that, the FBI said that mortgage fraud costs consumers somewhere between $4 billion to $6 billion per year and that  suspicious activity reports in Fiscal Year 2008 hit 63,173 and so far in 2009, 28,873 such reports have already been filed.

So today the US. Department of the Treasury, the Department of Justice (DOJ), the Department of Housing and Urban Development (HUD), the Federal Trade Commission (FTC), and the Attorney General of Illinois said they would open new initiatives to coordinate information and resources across agencies to maximize targeting and efficiency in fraud investigations, alert financial institutions to emerging schemes, step up enforcement actions and educate consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.

In terms of new enforcement plans, the Treasury Dept. and FinCEN said they had begun an effort to combat fraudulent loan modification schemes and coordinate ongoing efforts across agencies to investigate fraud and assist with enforcement and prosecutions. In less than a week, FinCEN's new targeting effort has produced leads that have helped various agencies to halt  department said. the illegal practices of those offering loan modification or foreclosure scams, FinCEN will gather information about possible fraudulent schemes, drawing upon a variety of data available to law enforcement, regulatory agencies, and the consumer protection community, for the purpose of identifying and proactively referring potential criminal targets to participating law enforcement authorities.

FinCEN is also now issuing advisory alerting financial institutions to the risks of emerging schemes related to loan modifications. The advisory identifies certain "red flags" that may indicate a loan modification or foreclosure rescue scam and warrant the filing of a SAR by a financial institution. Examples of possible signs of fraudulent activity, such as requiring that fees be paid before services are provided, are listed in the advisory. In addition, the advisory requests that financial institutions include the term "foreclosure rescue scam" in the narrative sections of all relevant suspicious activity reports.

Meanwhile the DOJ is working with federal and state law enforcement and regulatory partners to ensure a coordinated and comprehensive response to the problem.  US Attorney General Eric Holder said he wanted to reinvigorate the Executive Working Group, which lets partners coordinate and exchange intelligence on competition and consumer fraud issues. The Attorney General also discussed DOJ's focus on investigating and prosecuting lenders who discriminate against borrowers based on race, national origin, or other prohibited factors.

"For millions of Americans, the dream of home ownership has become a nightmare because of the unscrupulous actions of individuals and companies who exploit the misfortune of others," Attorney General Eric Holder said.

Meanwhile the FTC announced  five law enforcement actions targeting perpetrators of alleged mortgage-related scams. They include:

  • Federal Loan Modification Law Center (FedMod). FedMod markets mortgage loan modification and foreclosure relief services to homeowners who are in financial distress, delinquent on their mortgages, or in danger of losing their homes to foreclosure. According to the FTC's complaint, FedMod charges consumers from $1,000 to $3,000 in fees for these services, much of which must be paid up-front, but fails in numerous instances to obtain the promised loan modifications. In radio advertisements, the FTC alleges, FedMod induces homeowners to call its toll-free number by misrepresenting that it is part of or affiliated with the federal government, although it is not. According to the complaint, FedMod often fails to answer or return consumers' calls or provide updates about the status of their loan modifications, and assures consumers that negotiations with their lenders are proceeding when, in fact, little or no effort has been made to contact the lender.
  • Bailout.hud-gov.us. According to the FTC's complaint, defendant Thomas Ryan used a foreign Internet registrar to falsely register two sites - bailout.hud-gov.us and bailout.dohgov.us. The sites were used to entice financially strapped consumers to seek mortgage loan modification services under the guise that the services were associated with, or were actually, the U.S. government, including HUD and the Treasury Department. The FTC alleges that the defendant misled consumers nationwide. A federal district court granted the FTC's motion for a temporary restraining order which required the Internet Service Provider (ISP) hosting the sites to immediately remove them from the Internet. The FTC and the defendant stipulated to a preliminary injunction prohibiting him from holding himself out as an agency of any U.S., state, or local government, or as being affiliated with any such agency.
  • Home Assure/Expert Foreclosure. In this case, the FTC alleges that the defendants promise consumers facing imminent home foreclosure that they can stop the foreclosure, regardless of the amount the consumer owes his or her lender. The defendants are charged with falsely claiming that they have special relationships with lenders, have helped thousands of consumers avoid foreclosure, and will provide a 100 percent satisfaction money-back guarantee. They typically charge consumers an up-front fee of $1,500 to $2,500 but, the FTC alleges, do little or nothing to help them avoid foreclosure and fail to give refunds when foreclosures are not stopped.
  • Hope Now Modifications LLC and New Hope Property LLC d/b/a New Hope Modifications LLC. On March 24, the FTC announced two related cases alleging that the defendants misled consumers about their ability to provide mortgage loan modification and foreclosure relief, and misrepresented that they were affiliated with or part of the HOPE NOW Alliance, the non-profit, HUD-endorsed organization that is a broad-based coalition of credit and home ownership counselors, lenders, and other mortgage market participants. In each case, the court issued a temporary restraining order with an asset freeze and set dates for a preliminary injunction hearing.

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