Foreclosure Scams Are Target of Crackdown
Tuesday, April 7, 2009
Federal and state officials are cracking down on foreclosure-rescue scams, the Obama administration said yesterday as it pledged to take on a growing industry that's targeting borrowers who are trying to save their homes.
The industry has mushroomed as the economy falters and homeowners scramble for help. But fees, which can reach thousands of dollars, often do not bring results and many of the companies are scams, federal officials said. Particularly troubling, the officials said, are firms targeting homeowners searching for help through the administration's foreclosure-prevention plan, Making Home Affordable, or adopting names similar to those of established government or nonprofit groups.
"Just as this administration intensifies our efforts to help American homeowners, those who would seek to prey on the most vulnerable are intensifying their tactics as well," Treasury Secretary Timothy F. Geithner said at a news briefing. Homeowners are not charged for access to the government program or for help from thousands of nonprofit groups.
Geithner was joined by two other Cabinet-level officials -- Attorney General Eric H. Holder Jr. and Shaun Donovan, secretary of the Department of Housing and Urban Development -- to make the announcement, as well as by the head of the Federal Trade Commission. But even with the high-level attention, the administration did not launch a new initiative to tackle the problem, which has been festering for months, but instead focused on touting existing efforts.
The Justice Department, FTC and HUD, plus state and local law enforcement, will align their responses to these scams to protect homeowners, federal officials said. The Treasury Department's Financial Crimes Enforcement Network is issuing an advisory to help lenders spot loan-modification scams.
The FTC has filed 11 complaints against such firms during the past year and sent warning letters to 71 companies. "Scammers are taking advantage of people in a difficult situation," said FTC Chairman Jon Leibowitz. "We're enforcing the law against these scam artists; we're putting others on notice that unless they change their ways, they're next."
But some firms are fighting back, arguing that they fill a gap left by overwhelmed lenders and nonprofits. The Federal Loan Modification Law Center in California has a legitimate service and welcomes a discussion with the FTC about its business, said Bill Anz, the managing attorney for the firm. The FTC filed a complaint against the firm last week, noting that it charges consumers $1,000 to $3,000 for help receiving a loan modification.
The nascent industry should be policed to weed out unscrupulous actors, Anz said. "Whenever there is disarray, you have lot of people step in to try to take advantage."
The company receives 40,000 to 60,000 calls a month and has helped about 1,000 homeowners receive loan modifications since it launched in December, Anz said. "I fully will give back the money for a client that does not get a modification," he said.
But another tricky issue for Anz's company and other firms is their names. Too many have taken on monikers similar to government agencies and other nonprofit groups offering help, federal officials maintain. For example, many companies use the word "hope" in their title, similar to Hope Now, an alliance of mortgage lenders, and Hope for Homeowners, a foreclosure-prevention program run by HUD. Anz said he would be willing to change the name of his Federal Loan Modification Law Center if the FTC asks it to.
NeighborWorks, a D.C. nonprofit group that is preparing a $6 million outreach program to alert homeowners about scams, has fought firms adopting similar names. The company has filed two complaints with search engines about sponsored advertisements that pop up when homeowners search for its name and sent a cease-and-desist order to another firm earlier this month.
"We had an organization that positioned itself as NeighborWork without the 's,' " said Ken Wade, executive director the nonprofit. "One of the challenges about this is there is nothing illegal about using a variation of our name, but the intent is pretty clear. The intent is to mislead."