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Before the Feature Film, a Message on Foreclosure Scams

By Michelle Singletary
Thursday, April 9, 2009

In an effort to push people away from foreclosure scams, the Federal Reserve has commissioned a 30-second commercial to be shown in the nine states with the highest incidence of home foreclosures.

The commercial will air Friday through April 17 in 18 movie theaters in California, Nevada, Michigan, Ohio, Florida, Arizona, Georgia, Maryland and Virginia. Many are multiplex theaters, and the commercial will run on all screens. So in addition to movie previews and the plea for moviegoers to turn off their cellphones, people will be warned to avoid outfits that will take advantage of them if they are having trouble making their mortgage payments.

The take-away tagline for the crisp, slick ad says: "It shouldn't hurt to get help!" In the voice-over, troubled homeowners are encouraged to go to http://www.federalreserve.gov and click on the link "5 Tips for Avoiding Foreclosure Scams."

The Fed isn't alone in trying to stomp out these schemes multiplying like cockroaches as the housing crisis worsens. There is a federal and state-led posse trying to round up the scoundrels ripping off homeowners at their most vulnerable time.

The Federal Trade Commission, along with the departments of Treasury, Justice, and Housing and Urban Development, announced joint efforts to coordinate and aggressively go after mortgage modification and home foreclosure rescue companies.

"For millions of Americans, the dream of homeownership has become a nightmare because of the unscrupulous actions of individuals and companies who exploit the misfortune of others," Attorney General Eric H. Holder Jr. said in a statement. "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."

After reviewing online and print advertisements nationwide, the FTC sent warning letters to 71 companies that might be deceptively marketing mortgage services.

The FTC said that in the last year, it has brought 11 law enforcement actions against operations the agency said was conning consumers. There has also been plenty of state action in running down companies engaged in fraudulent activity. Illinois Attorney General Lisa Madigan filed two lawsuits recently against Chicago area mortgage rescue fraud schemes.

"We have repeatedly found that these operations are swindling desperate homeowners out of money they can't afford to lose," Madigan said in a statement.

Typically this is how a foreclosure scam works. A company will "guarantee" it can stop a foreclosure or help a homeowner, through a mortgage modification, to get a better interest rate or reduce his or her monthly payment. To snare its prey, the company may use a copycat name or look-alike Web site to appear to be government-sponsored or a nonprofit, according to the FTC.

In a panic, victims pony up an upfront fee, usually $1,000 to $3,000. But after collecting the money, the company does little if anything to assist the homeowner.

"The lawsuits I have filed prove they don't provide any help," Madigan said. "They don't call your lender, they don't modify your loan, and they don't represent you in court if you're in foreclosure. All they do is take your money."

The sad part is that homeowners can get foreclosure prevention assistance free from legitimate nonprofit housing counseling groups certified by HUD. You can find a counselor operating in your local community by going to http://www.hud.gov or by calling (877) 483-1515. These groups do not charge for their services and actually help some people modify their loans or avoid foreclosure.

Under the plan to end foreclosure scams, loan servicers have agreed to distribute the FTC consumer tips in monthly statements, in correspondence to delinquent borrowers, in counseling sessions and on their Web sites.

I find that last effort laughable.

I've heard from homeowners frantic and frustrated because they have tried to contact their lender or loan servicer but have gotten volleyed from one person to the next. They are often forced to wait weeks for a response to their pleas for help.

HUD-approved housing counselors complain that many lenders and loan servicers are not working hard enough or in good faith to modify loans that should and could be modified. Some people are getting help but not enough, and not soon enough.

So when a company comes along offering to guarantee assistance and save their homes, these distressed people jump at the chance of hope. They don't see that paying an upfront fee of $1,000 to $3,000 is foolish. Because they are desperate, they don't see that it's absurd.

The federal and state efforts are admirable. Maybe someone going to a movie will actually pay attention to the Fed ad and seek credible help. The law enforcement actions will shut down some of the fraudulent foreclosure scams.

But I'm not optimistic this campaign will significantly squash the cockroaches preying on people trying to avoid foreclosure. The housing crisis has just left too many homeowners to feed upon. This infestation won't go away until the source of the problem is eradicated.

-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

-- By e-mail: singletarym@washpost.com.

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