Mortgage Fraud Prevention a Top Government Priority

Desperate homeowners who are trying to avoid foreclosure are attractive targets for mortgage fraud schemes, which have proliferated in recent months. But law enforcement agencies are taking aggressive steps toward fraud prevention as the government ramps up consumer protection.

Crime often rises during harsh economic times, as people-including career criminals-look for creative new ways to make ends meet. With the number of foreclosures hitting epidemic proportions, the prevalence of mortgage fraud is also growing rapidly.  Homeowners under duress are easy prey for mortgage fraud schemes. The FBI, for example, is currently investigating 2,100 mortgage fraud cases. That represents five times the number that it handled during 2004.

Obama aims for consumer protection

The Obama administration recently announced a comprehensive initiative aimed at counteracting the trend and providing better consumer protection. Multiple federal agencies are involved in the coordinated effort, including the Justice Department and the Federal Trade Commission. Treasury Secretary Timothy Geithner also explained that the Treasury Department's Financial Crimes Enforcement Network is issuing advisories and alerts to mortgage lenders across the nation to help them spot various scams and report them to the authorities.

Mortgage fraud and loan modification

Many of the mortgage fraud activities relate to loan modification, which involves the significant reworking of mortgage loans to make payments more affordable and save homeowners from foreclosure.  Fraud perpetrators typically present themselves as professionals who specialize in loan modification negotiations. Some con artists are even brazen enough to use websites, logos, and company names that closely resemble those of legitimate non-profit organizations or official government initiatives, like the emergency Making Home Affordable program launched by President Obama.

They usually claim that they'll intervene on behalf of homeowners, and persuade lenders to agree to change the terms of mortgages.  The catch is that they require hefty cash payments in advance, and then disappear without performing the services they promised. According to a recent story in the Chicago Tribune, lawsuits have been filed against two Illinois-based companies that offer to do loan modification work. The lawsuits allege that the two businesses charged homeowners fees ranging from $650 to $1,500 in exchange for loan modification services, but that no actual services were ever performed or delivered.

Fraud prevention programs

Victims who are already stressed-out and financially strapped get taken advantage of and fleeced by this type of fraud.  It can leave them in much worse shape than before, and often pushes them all the way into bankruptcy. Reacting to the crime wave, which frequently targets senior citizens, housing advocacy groups and law enforcement agencies are investing millions of dollars in proactive consumer protection outreach programs.  The Federal Trade Commission (FTC) has already initiated lawsuits against about half a dozen enterprises that are alleged to have run mortgage fraud scams, including those that try to pass themselves off as government affiliated housing agencies or loan mitigation counseling services. The FTC is also issuing written warnings to more than 70 other companies that appear to be using deceptive marketing tactics.