With more than 2.1 million homeowners estimated to lose their homes this year according to Moody’s projections, more and more homeowners nationwide are falling prey to mortgage modification scams promising to help homeowners retain their homes.

In Arizona, foreclosure-rescue scams have skyrocketed 30 percent in the past few months, Arizona Attorney General Terry Goddard revealed at a recent meeting of the Arizona Foreclosure Prevention Task Force (“Foreclosure Scams on the Rise,” The Arizona Republic, May 20, 2009).

“Firms are contacting homeowners on the verge of foreclosure, offering help and instead taking the money the homeowner has,” Goddard said. “We have a real obligation to find these people and prosecute them.”

New foreclosure-rescue scams have arisen under the federal government’s mortgage loan modification plan that began in March, in which lenders work with homeowners who are at risk of losing their homes to reduce the interest rate or principal on a mortgage in an effort to help these homeowners avoid foreclosure. The federal program was recently expanded to assist homeowners who previously didn’t qualify for mortgage loan modifications due to the fact that they owed more on their home than what the home was worth.

Just-released data shows that mortgage companies have made more than 55,000 offers to modify mortgage loans since the government mortgage modification program’s March inception date, according to The Arizona Republic. Currently, 14 companies, which service 3 out of every 4 of all U.S. mortgages, have signed up to do mortgage modifications under the new government plan.

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Hundreds of FBI agents and federal prosecutors could be hired to investigate the estimated 5,000 mortgage fraud claims that are reported every month if a new Senate bill becomes law, reports The Associated Press (“Senate Votes to Hire Hundreds More FBI Agents, Prosecutors to Tackle Mortgage Fraud Cases,” April 28, 2009).

“As foreclosures menace more and more hardworking homeowners, they become more desperate for help,” said Senate Majority Leader Harry Reid, D-Nev. “Unfortunately, schemers, swindlers, and scam artists are all too happy to pounce.”

To protect homeowners from such scams, the proposed legislation would allow the government to hire 160 special FBI agents dedicated to investigating mortgage fraud, along with 200 support staff. According to current data, despite the doubling of caseloads in the last three years, the FBI has fewer than 250 special agents devoted to financial fraud cases.

Under the proposal, the Justice Department would also be allowed to hire an additional 200 prosecutors and civil enforcement attorneys as well as 100 support staff.

Although the bill — sponsored by Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa — may end up costing more than $265 million a year for the next two years, supporters, including President Obama, say that the legislation would more than pay for itself, reports The Associated Press. Regulators anticipate that the large number of fines and penalties that would result from more aggressive government investigations would subsidize the new legislation.

If approved, the measure would go into effect beginning Oct. 1, 2009, and would cover the 2010 and 2011 budget years.

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More than 1,000 people have been defrauded out of a total of $70 million after getting involved in a massive mortgage fraud scheme operated by Metro Dream Homes, a company that promised to pay off the mortgages of people who invested a minimum of $50,000 in Metro Dream Homes (more…)

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Seeking to clamp down on mortgage fraud, Sen. Charles Schumer of New York has asked the Obama administration for $100 million to help regional prosecutors combat the nationwide mortgage fraud problem (more…)

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Homeowners are more likely to lose their homes to foreclosure because they’ve lost their jobs than because their loan payments have become unmanageably high, according to a new study by the Boston Federal Reserve that is raising doubts about the effectiveness of the government’s new loan modification program (“Unemployment: Big Factor in Home Defaults,” Reuters, April 13, 2009).

The study revealed that consumers are also more likely to default on their home loans if their home values plummet than if their mortgage terms are unfavorable. That finding led Boston Federal Reserve economists to conclude that policies directly aimed at providing aid to unemployed homeowners may be more effective at helping homeowners avoid foreclosure than the loan modification and refinance policies outlined in President Obama’s home rescue plan.

Under the government plan, certain homeowners who are underwater on their mortgages would be able to get a government-subsidized mortgage loan modification through their lender, while other homeowners who have little or no equity would be able to refinance their home loans.

“Foreclosure-prevention policy should focus on the most important source of defaults” including unemployment, the economists wrote in the study.

They said that homeowners would be better served by a government plan that supplements an unemployed homeowner’s lost income with loans and grants, though the report didn’t outline details for this type of strategy.

Government Program Questioned

Although government officials believe that the housing crisis can be attenuated, “by changing the terms of ‘unaffordable’ mortgages,” Boston Federal Reserve economists point out that policies targeting the modification of home loans “face important hurdles in addressing the current foreclosure crisis.”

Chief among those hurdles is how effective Obama’s loan modification program will be at preventing foreclosures and how many homeowners will actually be able to refinance their homes at today’s record-low interest rates in one of the most stringent credit markets in years.

While the Obama administration estimates that the loan modification plan will help around 9 million homeowners stay in their homes and that some 7 to 9 million homeowners may be eligible to refinance, both options may end up helping far fewer homeowners than expected.

In order to refinance, homeowners must owe no more on their mortgage than 5 percent more than what their home is worth and those homeowners trying to modify their mortgages must still have enough income to make a reduced loan payment to qualify.

Hundreds of thousands of homeowners who reside in Nevada, Florida, Michigan, and Arizona — where property values have plummeted by as much as 45 percent — won’t qualify for the government loan modification program. They may, however, benefit from the unemployed homeowner plan highlighted in the Boston Federal Reserve report, if it ever becomes reality.

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At a time when thousands of homeowners are facing foreclosure and are desperately trying to hang onto their homes, bogus loan modification companies are continually popping up to scam homeowners, taking their money without actually doing any work to modify home loans, reports KCRA Sacramento (“Loan Modification Company Is a Scam,” March 31, 2009).

Most recently, the Better Business Bureau of Northern California has issued warnings to homeowners about the Roseville-based company ShortRefiNow.com, an unlicensed loan modification organization that has reportedly stolen thousands of dollars from struggling homeowners.

Kris Pinkney, one of ShortRefiNow.com’s clients, gave the company $3,000 upfront to modify her mortgage. When she contacted her lender later to see how the modification was going, her mortgage holder told her that ShortRefiNow.com called and asked a single question: “How do you do a refinance?”

When Pinkney attempted to follow up with ShortRefiNow.com about her mortgage modification, she got the runaround. “They said, ‘I’m not sure who’s taking care of it. The person taking care of it had emergency surgery,’ ” Pinkney said. “I knew — you know when someone’s lying.” Eventually, Pinkney did get a portion of her $3,000 payment back from ShortRefiNow.com.

Other homeowners weren’t as fortunate. According to the BBB, 14 other individuals who filed complaints against the company and paid between $2,600 and $5,300 upfront to have their mortgages modified never received the promised services or any payment refunds.

In February, the California Department of Real Estate issued a Desist and Refrain Order against ShortRefiNow.com, demanding that the company stop performing any and all acts requiring a real estate license until the company obtains that license, KCRA reports.

Although ShortRefiNow.com assured KCRA that in response to the order they were looking for attorneys to address their client’s claims, it now appears that ShortRefiNow.com has vacated its office.

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Scam artists masquerading as loan modification consultants have become more bold when it comes to deceiving homeowners, California Attorney General Edmund Brown said in a news release issued last week, (“Brown Warns Homeowners That Scam Artists Are Using Forged Letterhead of Lenders to Con Californians,” California Attorney General news release, March 9, 2009).

“Scam artists have sunk to a new low and are using the forged letterhead of lenders to con worried Californians into handing over their hard-earned money,” Brown said. “Californians should be deeply skeptical of anyone who demands money up front and makes extravagant promises that they can save their home.”

The warning from Brown comes shortly after the arrest of Anna Santos of North Hills, Calif., who was charged with money-laundering, conspiracy, and four counts of grand theft for the part she played in a loan modification scheme that stole $700,000 from homeowners.

Under First Gov, a fraudulent mortgage modification company, Santos and others solicited hundreds of homeowners by mailing them flyers that appeared to be from their lender or the government. The flyers, which featured large headers with the words “Final Notice,” falsely promised homeowners that they would receive mortgage modifications to stop foreclosure on their homes in exchange for upfront fees ranging from $1,500 to $5,000.

Once homeowners provided their mortgage information to Santos’ company, they received a “confirmation” letter and other documents that led them to believe that their mortgage lender had been notified of their mortgage loan modification.

When homeowners complained that they were still receiving foreclosure notices from their lender, homeowners were told that their mortgages had finally been renegotiated, but that their lenders needed further “good faith” payments to secure the new terms of their mortgage.

Homeowners were then instructed to submit their payments, in the form of money orders or cashier’s checks, to the fictitious “Payment Processing Department.”

None of these payments, however, were credited to homeowners’ mortgage loans, according to the news release. Instead, Santos deposited the funds into the fraudulent company’s bank accounts and then transferred the money to others involved in the mortgage modification scheme.

Many victims lost more than $6,000 in the scam before the attorney general stepped in and put an end to the group’s criminal activities.

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Out-of-work homeowners with Citigroup mortgages may soon be getting a break from their lender. Citigroup announced that it will be cutting mortgage payments to an average of $500 a month for three months under its new Homeowner Unemployment Assist program, reports The Associated Press (“Citigroup to Cut Mortgage Payments for Jobless,” March 3, 2009). (more…)

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The House of Representatives approved a measure Thursday that would give bankruptcy judges the authority to modify the mortgages of homeowners filing for bankruptcy. (more…)

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One part of President Obama’s $75 billion housing bailout plan that deals with “judicial modifications” has received the support of some lawyers and consumer advocates who feel it may be just the push lenders need to ramp up home loan modification efforts, reports the Dallas Morning News (“Threat of Judges Changing Mortgage Terms May Motivate Lenders,” Feb. 23, 2009). (more…)

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