Mortgage Modification Scams on the Rise; Feds and States Crack Down on Offenders

Scammers are preying on homeowners who are desperate to find a way out of the nation’s worsening housing crisis by offering fraudulent mortgage modification services which are available for free from a variety of legitimate government-sponsored programs, federal officials say.

Companies, many with official-sounding names that are similar to actual government programs, have been taking advantage of borrowers faced with losing their homes to default or foreclosure. In some instances, companies offering fraudulent help with modifying a mortgage use stationary that is similar to that used by the actual lender or government or personal account information in an attempt to defraud unsuspecting borrowers.

In almost every case, the offers of help are actually scams that charge excessive amounts of money for assistance that is not delivered and is, in fact, available for free through various mortgage-modification programs sponsored by the government. In the worst cases, homeowners who think they have hired a reputable, responsible firm to handle their mortgage modification are swindled out of their homes or end up further behind on payments than they were when they looked for help.

Federal authorities are promising to get tough on the tactics.

“These predatory scams callously rob Americans of their savings and potentially their homes,” said Treasury Secretary Timothy Geithner. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”

FTC Sends Warning Letters, FBI Investigating

The Federal Trade Commission said it has sent warning letters to 71 companies accused of running suspicious advertisements for mortgage modification programs. The letters warn the companies to suspend operations, clean up their acts, or else face stiff fines and other punishment. The agency also has filed five new civil cases against companies accused of promoting illegal loan modification scams while the FBI is investigating more than 2,000 cases of mortgage fraud, officials said.

Complaints from borrowers about offers from for-profit loan modification consultants have been pouring in for more than a year, officials said. Most of the programs offered turn out to be scam artists looking to cash in on vulnerable borrowers by making promises about helping them change the terms of their home loans and lower their monthly payments.

Misleading Ads Targeted

Billboard advertisements and radio spots promising “expert help” in dealing with out-of-control mortgages also are being investigated by federal authorities. Many former mortgage brokers, appraisers, and agents who have found themselves out of work writing new loans are behind the offers offering assistance with modifications. Telling legitimate offers from scams can be difficult, authorities said.

The crackdown on scams tied to the mortgage-modification process has also reached some of the states, where tougher penalties are now in place for those carrying out foreclosure scams. Also, state prosecutors are using fraud statutes to file criminal charges against companies that take advantage of home owners.

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