WASHINGTON — In an effort to protect consumers who seek federal help to stay in their homes, the Obama administration on Monday announced a major crackdown on scams that target cash-strapped homeowners facing foreclosure.
As part of the new enforcement effort, the Treasury Department's Financial Crimes Enforcement Network will provide an advisory to financial institutions to help them spot and report questionable loan-modification schemes. The new effort also will enhance coordination and information-sharing among state and federal regulators and will better educate consumers on how to avoid being duped, Treasury Secretary Timothy Geithner said.
"What today's announcement means for American homeowners is this: We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar. And we will increase our knowledge of how these companies operate, enhancing our efforts to identify and prosecute every individual involved in a mortgage rescue scam," he said.
The stepped-up enforcement effort comes amid an explosion of mortgage fraud cases in which opportunistic scammers woo vulnerable homeowners with promises of assistance that never materialize.
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The crackdown, while welcomed, comes too late for untold thousands of homeowners who've lost their equity, property and trust in the financial markets because of criminal activity in the housing sector.
Mortgage fraud cases have increased more than 400 percent since 2004, and the FBI is investigating more than 2,100, Attorney General Eric Holder said.
The bureau has more than doubled the number of agents that pursue these cases through its National Mortgage Fraud Team after nearly 180,000 reports of possible mortgage-fraud activity were made from 2002 through 2008.
Some 7 million to 9 million families will be able to restructure or refinance their mortgages through a number of initiatives under the Obama administration's "Making Home Affordable" program. However, these programs also offer criminals an opportunity to exploit families by offering fraudulent services designed to sound like legitimate federal programs.
On Monday, the Federal Trade Commission announced legal action to block the alleged deceptive marketing tactics of five companies that are offering mortgage modification and home foreclosure-relief services. Two of the companies, Hope Now Modifications LLC and New Hope Property LLC, both of New Jersey, allegedly misrepresented that they were affiliated with the HOPE NOW Alliance, a coalition of credit counselors, lenders and other mortgage professionals endorsed by the Department of Housing and Urban Development.
This makes 11 loan-modification and mortgage-scam cases that the FTC has brought in the last year. More than 20 states also have taken legal action against companies engaged in similar practices, including 22 that Illinois Attorney General Lisa Madigan is prosecuting.
The FTC also sent letters to 71 other companies whose marketing may be deceptive and in violation of federal law, it said. The companies were identified in a nationwide review of ads on the Internet and elsewhere.
"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," Geithner said.
Mortgage scams employ numerous tactics to find victims. Some take homeowners' names from public foreclosure notices and send letters touting their services. Others advertise on the Internet, television and radio or in public places such as bus stops. The ads often feature claims such as "Stop foreclosure now!" or "We can save your home. Guaranteed. Free consultation."
Most importantly, they often require upfront fees, which most legitimate nonprofit counseling agencies do not charge. In most cases, after homeowners pay the fees — ranging from several hundred to several thousand dollars — they get nothing in return.
In Kansas, the Justice Department recently won convictions of scam artists who charged upfront fees to help homeowners avoid foreclosure, then filed fraudulent bankruptcy petitions on their behalf, Holder said.
In New York City, Holder said, the department successfully prosecuted scam artists who induced homeowners to "sell" their homes to "straw buyers," claiming that they'd get the properties back after foreclosure was averted. The homeowners ended up losing title to their homes and facing eviction.
Holder, speaking at a joint news conference, said his department already was hearing concerns that distressed borrowers weren't being offered government assistance with their loan modifications and other requests on an equal basis.
"Let me be absolutely clear," Holder said. "Discrimination in lending on the basis of race, national origin or other prohibited factors is destructive, morally repugnant and against the law. And we will use the full range of our enforcement authority to investigate and prosecute this type of unacceptable lending discrimination."
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