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Saturday, Oct. 25, 2008

Loan-help schemes scrutinized

Claims to fix mortgages for fee set off red flags for the feds and Cardoza

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WASHINGTON -- The Justice Department is gearing up to probe potential scams targeting distressed homeowners in the San Joaquin Valley.

On Friday, Rep. Dennis Cardoza, D-Merced, urged Attorney General Michael Mukasey to investigate mortgage-reduction schemes marketed in the region. For an upfront fee, homeowners are being told their monthly mortgage payments can be renegotiated.

At best, the homeowners may end up paying for work that's available for free. At worst, they'll pay for work that isn't done at all.

"People need to be very careful who they send their money to," Cardoza cautioned Friday.

The mortgage-reduction schemes are just one of the housing-related problems confronting law enforcement officials. As the market melts down, the investigations are heating up. Two weeks ago, Modesto-based FBI agents assured Cardoza's office they were forming a task force to zero in on mortgage-related fraud.

In his letter Friday, Cardoza told Mukasey that it was "imperative" that law enforcement authorities "crack down on these foreclosure scams quickly and comprehensively." He called San Joaquin Valley residents "particularly vulnerable" because of the region's foreclosure crisis.

The questionable solicitations come in different ways.

Phone calls offering mortgage negotiation services have been ringing through the San Joaquin Valley for several months.

Sonia Neal, a Realtor and volunteer counselor with the Community Housing Council of Fresno, added that sometimes "they will even just show up at the door."

Official-looking letters are arriving in valley mailboxes, some citing congressional bill numbers or phone numbers for a "loss mitigation department." And Thursday in Modesto, some homeowners attended a workshop in which they were asked to pay $3,500 to get their mortgage woes resolved.

Typically, the companies offer to renegotiate a mortgage in exchange for an upfront fee amounting to one month's mortgage payment, or more.

Cardoza: 'Seem fly-by-night'

"We called some of these companies back; they don't even have Web sites, and they seem fly-by-night," Cardoza said. "When they found out we were a congressional office, they stopped responding."

Even before Cardoza's encouragement, federal investigators began pouring more resources into mortgage-related cases. The FBI reported having 1,569 pending mortgage fraud investigations open as of August; the number of new mortgage fraud cases opened annually doubled from 2003 to 2007.

The FBI has 42 mortgage fraud task forces and working groups established nationwide. A Justice Department official could not be reached for comment Friday afternoon.

For scammers and inves- tigators alike, the valley is a target-rich environment. Stockton, Modesto and Mer- ced top the foreclosure rankings among cities nationwide, and Fresno is not far behind. As house prices have dropped and adjustable-rate mortgage payments have risen, more homeowners have found themselves on thin ice.

Neal noted that a number of companies offering "loan modification" services have consequently popped up throughout California. While she acknowledged "there are some legitimate" companies offering loan-modification services, she joined Cardoza in stressing caution.

"Some people will get desperate and pay the money," Neal said, "and then nothing happens."

Some of the scams appear to be an unexpected byproduct of the Hope for Homeowners Act passed by Congress earlier this year. The bill expands the ability of eligible borrowers to get better terms. For instance, homeowners must be spending more than 31 percent of their monthly income on their mortgages.

Distressed homeowners who heard about the bill but don't know its details could be particularly vulnerable to fleecing.

Nonprofit housing groups, such as No Homeowner Left Behind, and couselors certified by the Department of Housing and Urban Development will help homeowners prepare applications for modified mortgages; the lenders are not obliged to change the terms, but sometimes they do.

Bee Washington Bureau reporter Michael Doyle can be reached at mdoyle@mcclatchydc.com or 202-383-0006.