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Prevention, not just enforcement, needed to curb growth in foreclosure rescue scams

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National Consumers League praises Obama Administration for commitment to enforcement, calls for renewed focus on consumer education

 

Release Date: April 10, 2009
Contact: 202-835-3323, This email address is being protected from spambots. You need JavaScript enabled to view it.

Washington, DC — With home foreclosures at an unprecedented and historic high, millions of consumers are more vulnerable than ever to mortgage fraud and bogus foreclosure rescue schemes, warns the National Consumers League (NCL), which has long tracked illegal scams through NCL’s Fraud Center. On Monday, the Obama Administration announced a wide-ranging multi-agency effort to bring loan modification fraud and foreclosure rescue scams under control. As the nation undertakes a much-needed crackdown, it is equally important that there be a renewed focus on consumer education to help consumers avoid falling victim to these criminals in the first place.

Mortgage fraud costs the lending industry an estimated $4-6 billion annually, according to the Prieston Group. At a time when consumer’s pocketbooks are stretched thinner each day due to a worsening economy, homeowners are increasingly vulnerable to fraudsters offering them a way to avoid losing their homes. Unfortunately, for tens of thousands of Americans, these schemes almost always end up with the consumer losing money, having their credit further damaged, and losing their biggest investment: their homes.

“We welcome the recent actions by the federal and state governments to tackle the growing threat of mortgage fraud,” said Sally Greenberg, NCL Executive Director. “However, vigorous enforcement actions – while a critical component of fighting fraud – must be combined with education to help consumers recognize and avoid these scams in the first place.”

Mortgage modification and foreclosure rescue scams come in a variety of guises, but some of the common ones include:

  • Upfront Fee Scam. Fraudster promises, for an upfront fee, to negotiate with homeowner’s bank to pay down back-payments, but scammer ultimately takes the money and disappears.
  • Lease-back or repurchase scams. Con artists promise to pay a mortgage and lease it back to their victims if the consumer signs over the deed. The scammer then raises the rent, sells the house, steals equity, or even evicts the tenant.
  • Refinance fraud. Victim signs over ownership of the house, thinking that they are signing documents for a new loan at a lower payment level.
  • Bankruptcy schemes. The scammer encourages the victim to stop paying their mortgage and offers to file bankruptcy for the consumer, for a fee.
  • Appraisal fraud. An appraiser – in cahoots with a bank – overvalues the home, then secures an unnecessarily large loan at high interest rates for the homebuyer. Another scenario is that the appraiser undervalues the home in order to justify a short sale and subsequent re-sale at market value for profit.

“Recent multi-agency federal and state actions to tackle the threat of mortgage fraud are a positive step in helping to protect consumers,” said Greenberg. “Fraudsters should be apprehended and brought to justice. All too often, however, victims of these schemes have already been ruined financially by the time mortgage fraud rings are broken up by law enforcement. Now, more than ever, enforcement should be tied to prevention by devoting more resources to educating consumers through churches, community centers, senior centers, schools, and libraries. This is needed particularly in vulnerable low-income, elderly, and immigrant communities, whose members are frequent targets for mortgage fraud.”

Consumers who suspect they may be targets of mortgage fraud have a range of resources available to them. NCL’s step-by-step guide to financing the purchase of a home, including critical information for protecting yourself against fraud, is available online at www.mortgagetown.org. The federal government has made numerous resources available online for consumers facing foreclosure, including the U.S. Department of Housing and Urban Development’s “Guide to Avoiding Foreclosure” and HUD’s new www.MakingHomeAffordable.gov Web site, as well a toll-free foreclosure counseling assistance hotline at 1-888-995-HOPE.

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About the National Consumers League
Founded in 1899, the National Consumers League is America’s pioneer consumer organization. Its mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. NCL is a private, nonprofit membership organization. For more information, visit www.nclnet.org.