Kamala Harris - For California Attorney General 2010

Extreme vigilance needed to combat loan scams

By Kamala D. Harris and Kevin Stein, Sacramento Bee
June 30, 2009

Across California, a new scam is cropping up.

It goes something like this: A homeowner falls behind on his mortgage and soon thereafter receives a letter from a company promising to help him get a modification of his mortgage. Over time, the homeowner ends up paying hefty fees of $3,000 to the company, and waits, having been instructed not to contact his lender and thinking his mortgage problems are being resolved.

In actuality, the company does nothing more than make a few phone calls to the lender – something the homeowner had already done himself. The mortgage falls further behind until one day the homeowner receives notice from the bank that his house is going into foreclosure. Instead of receiving desperately needed help, this distressed homeowner was defrauded out of his money and his home.

The "loss mitigation" company, it turns out, was never there to help. Instead, it is the same company that previously peddled subprime loans and simply found a new way to prey on people in need.

This scenario is all too common. Countless homeowners have been defrauded by this type of scheme since the start of the foreclosure crisis. Mortgage counselors at 40 agencies in California, representing thousands of distressed homeowners across the state, report fee-for-service scams are a rising problem among their clients, according to a recent survey by the California Reinvestment Coalition.

President Barack Obama's foreclosure prevention plan is striving to bring help to millions of distressed homeowners and moving their mortgages through the loan modification process. Instead of joining the president's goal of helping communities, these companies are engaged in a manipulative marketing ploy, dangling the prospect of relief in front of desperate borrowers.

The average fee these companies charge borrowers is $3,000 and some go as high as $9,500. All or most of these fees are charged up front, before any services have been rendered. And some companies even have the audacity to charge monthly fees.

Homeowners need to know: To access the federal foreclosure prevention plan and other assistance programs, borrowers do not have to pay anyone. Help is available for free. People who are struggling to make mortgage payments should not be asked to pay thousands of dollars for a service they can get for free.

There are nonprofit housing counseling agencies that have the expertise and the mission to serve the interests of California homeowners and can, free of charge, help homeowners determine how to negotiate loan modifications and take the steps necessary to avoid foreclosure.

A list of free housing counseling agencies can be found online at www.hud.gov/offices/hsg/sfh/hcc/ hcs.cfm.

Unfortunately, the state's current regulatory system is woefully inadequate to keep up with the burgeoning market of for-profit companies springing up – many of them shifting gears from the subprime mortgage business.

Every level of government is now responding to address this massive problem. Obama recently signed sweeping legislation to crack down on mortgage fraud. So, too, the California attorney general announced new efforts to crack down on for-profit foreclosure-related schemes. The Legislature is also taking steps to address this crisis, crafting legislation to rein in predatory practices. As well, cities such as Los Angeles and San Francisco are putting forward local ordinances to help protect distressed homeowners. We applaud these efforts.

At the same time, we must make every effort possible to go further to protect consumers. Homeowners urgently need access to accurate information and real assistance, and predators must be stopped.

Borrowers who have been victimized by these scam artists should have a private right of action so they can sue predatory companies for damages they have suffered. Criminal penalties for violators must be enhanced to deter these predatory practices.

And no one should be able to charge a fee to a distressed homeowner for merely placing a few phone calls to loan servicers. Consumers who purchase a product or service are entitled to expect a real benefit, and struggling homeowners should be no different.

Finally, any company that is permitted to engage in this business must be required to report data to regulators showing how many contracts it entered into to provide these services, what it charged, and what result it obtained for the homeowner. Only in this way can policymakers and the public be assured that we are doing all we can to prevent further displacement of working families, and further destabilization of our communities.

We must also do everything we can to hold perpetrators accountable. Local, state and federal law enforcement officials are taking notice of these growing crimes and joining together to fight back. We encourage continued collaboration and expanded action to crack down on fraudulent practices and send offenders to jail.

Defrauded homeowners deserve our protection and fraudulent business practices must be stopped.

Source: sacbee.com

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