“Every time there’s a new government program announced — in this case, it’s a very large settlement — scam artists use that as an opportunity to defraud people,” said Illinois Attorney General Lisa Madigan.
Madigan said her office has seen an “explosion” in such scams since the bottom fell out of the housing boom in 2006. “As the economy goes, so goes our consumer fraud complaints,” she said.
Across the country, the combination of rampant foreclosures, desperate homeowners, record-low interest rates and billions in available government aid have created fertile ground for scam artists, who have found new and creative ways to prey on the millions of Americans who owe more than their homes are worth.
State and federal authorities have stepped up efforts to curb mortgage-related crimes. They have hired more investigators and created special task forces. They have ramped up efforts to alert the public to scams. They have held mortgage fraud summits in hard-hit states such as California, Nevada and Florida. They have supported laws to ban the practice of demanding upfront fees from consumers. They have filed hundreds of lawsuits and sent out thousands of cease-and-desist orders to shady businesses.
Despite those efforts, the high levels of fraud persist.
“It’s like a game of Whac-a-Mole,” said Patrick Madigan, an assistant Iowa attorney general who headed efforts to negotiate the national mortgage settlement. “You hit one and four more pop up.”
No central database tracks cases across every jurisdiction — most consumer complaints are handled by state attorneys general, and only a small fraction of cases ever reach federal authorities — but records that are available offer a glimpse at the depth and breadth of the problem.
In the past three fiscal years, the Justice Department has filed nearly 1,500 mortgage fraud cases against nearly 3,000 defendants, according to an agency representative. During that same stretch, the number of mortgage fraud prosecutions by the department rose 92 percent.
FBI agents also have worked on a record volume of cases in recent years. The overwhelming majority used to involve fraud related to the origination of mortgages, but now about 40 percent of the bureau’s caseload involves homeowner-rescue schemes, said Timothy A. Gallagher, the FBI’s section chief for financial crimes.
Some critics argue that authorities haven’t yet prosecuted bank executives whose firms’ risky behavior precipitated the housing bust and hurt far more homeowners than small-time crooks.