As more and more people become desperate to find some way to keep their homes, they turn to "foreclosure rescue" experts and other scam artists, when traditional lending sources dry up. USA Today reports that Federal mortgage fraud convictions more than doubled in 2007 and they expect the numbers to go even higher in 2008. The FBI opened 1,210 mortgage fraud cases in 2007, which are nearly triple the number of new cases in 2003, according to USA Today. Convictions, which totaled 123 in 2006, were up to 260 in 2007.
The FBI created 34 mortgage fraud task forces and working groups.These groups include investigators from HUD, Treasury and Veterans Affairs. FBI Financial Crimes Section Chief Sharon Ormsby told USA Today that "low interest rates, rising home values and low lending standards "created the perfect storm of lending fraud." The FBI is finding deceptive pricing and falsified documents by mortgage brokers, lenders, appraisers, real estate firms and others.
Scammers focus on people desperate to keep their homes when their loan rates reset or a balloon payment is due. They are also starting to prey on homeowners 62 and older who seek reverse mortgages. One common scam involves a "foreclosure rescue" expert convincing home owners in trouble to sign over their deed to a third party who can qualify for a second mortgage. The scam artist then pockets the cash and defaults on the loan. The home owner then faces foreclosure. In one case cited by USA Today, six people were charged by a New York grand jury with allegedly stealing more than 80 homes this way. If anyone asks you to sign over your deed, just don't do it!
Another popular scam during the housing bubble was to buy cheap homes and then get an appraiser to falsely appraise the home at a higher value so the home could then be flipped for a huge profit.
In addition to these popular scams, housing advocates want the FBI to look into mortgage brokers who defraud consumers by steering them to high-interest loans so the brokers can earn higher fees. Kathleen Keest of the Center for Responsible Lending told USA Today, "They have not done enough. The business standards have really sunk across the board in the past few years. The federal regulators were just asleep at the wheel."
I couldn't agree with her more. The Fed has a responsibility to consumers and they just allowed these deceptive practices to continue without putting on the breaks. While the Fed is finally acting to change the rules, it's too little too late.
Lita Epstein has written more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure."