HUD Warns Against Foreclosure Scams

With the release of President Obama's Making Home Affordability Program and recent media coverage on low mortgage rates, many new loan modification and foreclosure prevention scams have started to surface. So much so that HUD (Department of Housing) issued a press release and sent an e-mail to all HUD partners warning of the potential destruction of these foreclosure scams.

The biggest key point in HUD’s warning lies here: as a homeowner, you will never have to pay to participate in the President’s Making Home Affordable plan. Also, mortgage consultations and counseling should never cost you money.

Since April is National Fair Housing month, I have included an excerpt from HUD’s foreclosure scam warning in today’s mortgage news to keep my clients educated. You can find the press release in its entirety on HUD’s website.

Treasury is issuing an advisory alerting financial institutions to the risks of emerging schemes related to loan modifications. The advisory identifies certain "red flags" that may indicate a loan modification or foreclosure rescue scam and warrant the filing of a SAR (Suspicious Activity Report) by a financial institution. Examples of possible signs of fraudulent activity, such as requiring that fees be paid before services are provided, are listed in the advisory.

As part of the multi-agency effort, Attorney General Eric Holder outlined ways in which Department of Justice has been cracking down on mortgage fraud schemes, including several successful convictions of scam artists in recent months. He also emphasized the Justice Department's commitment to working with federal and state law enforcement and regulatory partners to ensure a coordinated and comprehensive response to the problem, describing the department's work with the FTC and state attorneys general to reinvigorate the Executive Working Group, which allows partners to coordinate and exchange intelligence on competition and consumer fraud issues. The Attorney General also discussed DOJ's focus on investigating and prosecuting lenders who discriminate against borrowers based on race, national origin, or other prohibited factors.

"For millions of Americans, the dream of home ownership has become a nightmare because of the unscrupulous actions of individuals and companies who exploit the misfortune of others," Attorney General Eric Holder said. "The Department of Justice's message is simple: if you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you."

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.

With that said, their is use for honest loan modification professionals, as most people who have tried modifying their own loan will tell you. Working directly with a bank to modify your loan is extremely time consuming, requires lots of follow up and is not always going to get the borrower the best deal as banks know many borrowers are desperate and will take the first modification deal offered. The advice I give to my clients is that if they want to try modifying the loan on their own nothing is wrong with that, and if you are unsuccesful then to hire a modificaion specialist. If you do hire a modification specialist, I personally would only employ someone regulated by the Department of Real Estate. The reason for this is the DRE allows for a modification specialsist to collect money up front, but if the modification is not completed within 90 days the person modifying the loan must return at least 75% of the up front fee. So, if the cost is $3000 for a modification, you are risking $750 if the modificaion can not be completed withint those 90 days, and if it is completed we typically have seen the ability to make back that $3000 within a few months. If you have any questions though please do not hesitate to contact George with all of your Real Estate Finance needs.

http://www.hud.gov/news/release.cfm?content=pr09-033.cfm