Mortgage modification scams lead to an increase in fraud investigations
With the downturn in the economy, there has been a drastic increase in companies involved in mortgage modification scams. Federal and state authorities are beginning to crack down on such companies.
The Atlanta Journal Constitution has the story here.
The federal government’s hope to modify or refinance up to 9 million mortgages has sparked the flurry of scams. Government officials note that the companies involved in the fraud often have official sounding names that make the borrowers think they are tied to the government. These fraudulent companies charge upfront fees of $1,000 to $3,000 for assistance with loan modifications that hardly ever pay off. Officials also note that borrowers can receive help for free from government-approved housing counselors. Consumer advocates agree that even legitimate consultants are no better than credit counselors who work with lenders at no charge.
The Federal Trade Commission has warned that these companies will use tactics such as promises to stop foreclosures, modify a loan for money upfront, or guarantees that a home will be saved. The FBI is currently investigating about 2,100 mortgage fraud cases which is a 400% increase from five years ago. The FTC has sent letters to 71 companies warning them of their suspicious advertisements and has filed complaints against others.
The response by states has been mixed. Some states have created tougher penalties for companies involved in foreclosure scams, and prosecutors in some jurisdictions have even brought criminal charges. However, many states are relying civil lawsuits.
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