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Personalized Refinance Quotes coalition goes after mortgage modification fraud

(05/03/2010) Days after a federal economic stability agency said the Obama administration's mortgage assistance program was vulnerable to fraud, a coalition of federal, state and community organizations launched a new campaign to fight that fraud.

The Loan Modification Scam Prevention Network, led by Fannie Mae, Freddie Mac, the Lawyers' Committee for Civil Rights Under Law, NeighborWorks America and a host of other agencies, recently announced a national campaign to prevent loan modification rip-offs and other scams.

The group plans public education, complaint reporting services and coordination with local, state, and federal enforcement agencies to thwart scammers and come-ons that prey on homeowners struggling with mortgages.

Recent changes in the Obama Administration's mortgage assistance program may make it more vulnerable to fraud, according to the special inspector general for the Troubled Asset Relief Program (TARP).

The changes to the Making Home Affordable initiative, announced in March, are intended to make it easier for struggling homeowners to avoid foreclosure. But the administration hasn't done enough to warn the public about fraud, says Neil Barofsky, inspector general of TARP.

TARP, is a federal government program created to purchase assets and equity from financial institutions to strengthen the nation's financial sector, especially area's crushed by the subprime mortgage crisis.

"Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners," Barofsky wrote in a quarterly report.

The administration's existing program has already spawned fraudulent schemes, the report said, such as one in which borrowers are tricked by "thieves" into paying upfront for modifications that never materialize.

Under the changes announced in March, the Treasury isn't requiring appraisals to determine a home's value in cases where mortgage principle is reduced to complete a mortgage modification, the report said. That could make it easier for mortgage lenders to fraudulently qualify for incentive payments.

A mortgage modification, used to make mortgage payments more affordable for struggling homeowners, typically occurs when the lender reworks the terms of an existing home loan by lowering the interest rate and exchanging an adjustable rate for a fixed rate, or extending the term of the loan, or both. Recent changes also include the lender reducing the principal to get the payment down.

The TARP report said the U.S. Treasury should follow the Federal Housing Administration's (FHA) guidelines, which require the use of an FHA-approved appraiser.

The new is designed to support national, state and local law enforcement efforts as a nationwide clearinghouse for loan modification scam information on complaints filed, laws and regulations, and enforcement actions.

Loan modification scams are schemes in which people take advantage of vulnerable homeowners. Scammers prey on homeowners in distress by guaranteeing to help the homeowner obtain a modification of their mortgage to save their home. Frequently, the borrowers pay money up front but receive no help at all and their home is lost to foreclosure.

The new website includes:

• An electronic complaint form that can be filled out easily by an individual who has been scammed or by counselors or friends helping a victim of fraud .

• Names of individuals and organizations who have been identified by enforcement agencies to have allegedly committed a loan modification scam.

• Information on how to avoid a loan modification scam.

• State-by-state information about rules, regulations and resources available to struggling homeowners.

• News and information on enforcement efforts.

Homeowners who believe they may have been a victim of a loan modification scam, can also call the Homeowners Hope Hotline at 1-888-995-HOPE to log a complaint and to receive free foreclosure prevention counseling.

"We've joined forces with government agencies and other industry leaders to help fight loan scams across the country," said Jeff Hayward, Senior Vice President, Fannie Mae.

"This effort links homeowners to free, legitimate counseling and helps to put scammers out of business. The goal of this campaign is to educate homeowners and empower those who have fallen victim to scammers to report and prevent future fraud," Hayward added.

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