New Program to Crack Down on Mortgage Fraud

A new initiative to crack down on fraudulent loan modification and refinancing schemes and help homeowners protect themselves against mortgage relief scams has been announced by the Obama Administration.

The effort comes as millions of U.S. homeowners are expected to seek relief from unmanageable mortgage payments through the Administration's new Making Home Affordable program. The program is designed to make it easier for homeowners to refinance or modify their mortgages in order to lower their monthly mortgage payments.

The new effort will coordinate efforts among federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities, and the private sector to protect homeowners seeking assistance under the Making Home Affordable from scam artists seeking to take advantage of their predicament.

"The Administration's Making Home Affordable program is a critical piece of our efforts to stabilize the financial system and ensure that it works with our efforts to grow the economy," said Treasury Secretary Tim Geithner, in a written statement announcing the initiative. "American homeowners desperately need the relief this program offers, but the very last thing they need is to be taken advantage of as they try to hold on to their homes."

Possible frauds identified

In a recent survey of online and print advertising for mortgage foreclosure rescue operations, the Federal Trade Commission (FTC) identified approximately 70 companies running suspicious ads. Treasury's Financial Crimes Enforcement Network (FinCEN) also reported that depository institutions filed nearly 180,000 reports of possible mortgage fraud from 2002 to 2008, with those involved in mortgage fraud often involved in other types of crime as well.

Such scams often include charging homeowners for services that are readily available for no charge from nonprofit agencies, or tricking them into deals that give the scammers effective control of the house and its equity.

"We have families on the edge of foreclosure that are being offered things that are too good to be true," said Housing and Urban Development (HUD) Secretary Shaun Donovan. "We will take every measure we can to educate and protect consumers and homeowners, bring these scams to light, and work to prevent con artists from exploiting the housing crisis."

"Red flags" may signal a scam

Through FinCEN, the Treasury Dept. has issued an advisory alerting financial institutions to be aware of certain "red flags" that may indicate a loan modification or foreclosure rescue scam. Examples of possible signs of fraudulent activity, such as requiring that fees be paid before services are provided, are listed in the advisory.

On the civil enforcement side, the FTC has filed five new cases to halt the illegal practices of individuals and companies offering loan modification or foreclosure scams - including one company that spent 9 million dollars on TV and radio ads in less than one year.

The FTC is also joining forces with a wide array of government, non-profit, and mortgage industry members to launch a new consumer education campaign to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.

Private lenders to distribute alerts

Several private sector national loan servicers, including Chase Home Finance, Suntrust Mortgage, GMAC Mortgage, and American Home Mortgage Servicing, are distributing FTC consumer alerts that provide consumers with tips for avoiding mortgage relief scams and direct them to free, legitimate counseling services for at-risk homeowners. The servicers will distribute the materials in monthly statements, in correspondence to delinquent borrowers, in counseling sessions, and on their websites.

The Making Home Affordable program was unveiled last month as part of an effort to stabilize housing prices and help responsible homeowners stay in their homes. The plan is intended to help up to 7 to 9 million families restructure or refinance their mortgages to lower their monthly payments and make their mortgages affordable now and in the future. Homeowners seeking mortgage relief can obtain free foreclosure advice through a variety of outlets, including www.MakingHomeAffordable.gov and the Homeowner's HOPE Hotline at 1-888-995-HOPE.