Beware of Foreclosure Rescue and Loan Modification Scams

Find tips from the Federal Deposit Insurance Corporation on avoiding foreclosure scams.  English and Spanish editions available in pdf format.

The Post-Foreclosure Experience of U.S. Household
"Despite the recent flood of foreclosures on residential mortgages, little is known about what happens to borrowers and their households after their mortgage has been foreclosed. We study the post-foreclosure experience of U.S. households using a unique dataset based on the credit reports of a large panel of individuals to from 1999 to 2010. Although foreclosure considerably raises the probability of moving, the majority of post-foreclosure migrants do not end up in substantially less desirable neighborhoods or more crowded living conditions. These results suggest that, on average, foreclosure does not impose an economic burden large enough to severely reduce housing consumption..."

Addressing the Impact of the Foreclosure Crisis: Federal Reserve Mortgage Outreach and Research Efforts
"Since the start of the financial crisis, the Federal Reserve System has undertaken a series of well publicized and unprecedented actions to help stabilize the mortgage and financial markets and promote economic recovery. What is less well known is that the Federal Reserve has also been working to respond to the foreclosure crisis
on “Main Street,” leveraging its research, community affairs and supervision and regulation functions to support innovative foreclosure prevention and neighborhood stabilization strategies at the local level. In the spring of 2009, the Federal Reserve’s Conference of Presidents embarked on a collaborative effort to leverage the
substantial knowledge of experts in mortgage markets across the Federal Reserve System. Under the auspices of the Mortgage Outreach and Research Efforts (MORE) initiative, the 12 Federal Reserve Banks and the Board of Governors have worked together proactively to inform and engage policymakers, community organizations, financial institutions and the public.

This publication, Addressing the Impact of the Foreclosure Crisis, highlights MORE-sponsored projects designed to communicate best practices and information about innovative programs to improve conditions in neighborhoods affected by high rates of foreclosure. It also reviews initiatives undertaken by the various Reserve Banks and the Board of Governors to respond to the foreclosure crisis. More detailed information about MORE projects, including foreclosure toolkits and other valuable information for borrowers and community organizations, can be found at the Foreclosure Resource Center of www.chicagofed.org and the other Federal Reserve Bank websites."

Addressing Foreclosed and Abandoned Properties
"Nearly 3.2 million foreclosures occurred in the U.S. in 2008, an all-time high. In many jurisdictions, the number and location of vacant properties changed so rapidly that officials had trouble tracking them, let alone formulating an effective response. The city of Cleveland, for example, estimated in early 2009 that at least 10,000 (or one in 13) of its houses were vacant while the county treasurer estimated that the number was 15,000—50 percent higher.

While much of the public’s attention has been focused on the economic repercussions of the nation’s housing crisis, the repercussions for law enforcement have been just as significant: vacant properties generate a host of interrelated problems,from unsafe structures and higher rates of crime to homelessness and strains on municipal services.

Jurisdictions across the U.S. have responded differently, tackling the problem from
various angles. Many of the strategies deployed are the result of collaborations
across government agencies and among public and private sectors. Police, city
attorneys, district attorneys, U.S. attorneys, housing and building departments,
health departments, community development organizations, landlords, private
developers, banks, mortgage lenders, legislators, and regulators are finding ways to
work together to slow or halt foreclosures, stem the decline of neighborhoods,
improve quality of life, and plan for new growth.

This document offers a sampling of responses developed by jurisdictions across the U.S. It is intended to serve as a quick reference for law enforcement and government agencies looking for ideas to address vacant and abandoned properties. For ease of reference it is divided into three types of responses: Prevention, Enforcement, and Reuse."

From: Wisconsin Legislative Reference Bureau.
Tap the Power: Foreclosure Crisis. compiled by Eileen Snyder< November/December 2009.
"With the collapse of the subprime mortgage market early in 2007, foreclosures reached crisis level, and the crisis continues today. In answer, federal, state, and local governments have implemented programs to help alleviate the problem and stabilize neighborhoods. This bibliography presents a selection of print and online resources about foreclosure and the programs implemented by states and the federal government to help homeowners.."

FDIC Launches Foreclosure Prevention Initiative
"The Federal Deposit Insurance Corporation (FDIC) today announced that it is releasing a free tool kit of information that will help borrowers, community stakeholders and the banking industry avoid unnecessary foreclosures and stop foreclosure "rescue" scams that promise false hope to consumers at risk of losing their homes.

The tool kit includes critical information to help borrowers know who to contact and what documents they need to have available to apply for a loan modification that could save their home from foreclosure. This tool kit also describes the warning signs of potential foreclosure "rescue" scams and how consumers, community stakeholders, and bankers can report scammers and prevent fraud. The public can access the free tool kit at http://www.FDIC.gov/foreclosureprevention. To ensure this information is widely available, the FDIC is conducting outreach to community-based organizations and the banking industry, and furnishing a referral service to help consumers identify sources of legitimate help and report fraud to the appropriate law enforcement agencies..."

Reducing Foreclosures: No Easy Answers
"This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. We use an economic model to focus on two key decisions: the borrower’s choice to default on a mortgage and the lender’s subsequent choice whether to renegotiate or modify the loan. The theoretical model and econometric analysis illustrate that unaffordable loans,
defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. In addition, this paper provides theoretical results and empirical evidence supporting the hypothesis that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date than contract frictions related to
securitization agreements between servicers and investors. While investors might be foreclosing when it would be socially efficient to modify, there is little evidence to suggest they are acting against their own interests when they do so. An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events
rather than modifying loans to make them more affordable on a long-term basis."

Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams
"The Federal Trade Commission today announced a crackdown on fraud and deception by mortgage modification and home foreclosure rescue companies. The FTC is seeking to halt the proliferation of these mortgage relief scams – which target distressed and vulnerable consumers who are delinquent or facing foreclosure – through increased law enforcement, consumer outreach, and close coordination with federal, state, and non-profit partners...

Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding Loan Modification/Foreclosure Rescue Scams
"The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to highlight loan modification/foreclosure rescue scams so that financial institutions may better assist law enforcement when filing Suspicious Activity Reports. This guidance is consistent with the Department of the Treasury's broader efforts to ensure that U.S. financial institutions are not used as conduits for illicit activity, including loan modification/foreclosure rescue scams.

In the current economic environment, many homeowners are encountering significant difficulty in making their mortgage payments, which has led to an increasing amount of fraud in the form of loan modification/foreclosure "rescue" schemes that take advantage of those homeowners in desperate situations. Under the pretense of helping homeowners modify their mortgage obligations, these schemes result in the loss of money, equity and in many cases the home itself..."

Tips for Avoiding Foreclosure Scams(Federal Reserve)
"...Solicitors of foreclosure schemes reach out to potential victims by a variety of means using the Internet, the telephone, and direct mailings. Some solicitors go door-to-door or approach homeowners at events related to home preservation. The information the Federal Reserve is providing, which is part of its "5 Tips" series, is intended to give consumers the basic information they need to recognize and avoid foreclosure avoidance scams. Consumers are urged to check the credentials of counselors and to avoid working with someone who collects a fee before providing any services or accepts payment only by cashier's check or wire transfer. Consumers should not pay for a service without knowing exactly what they are buying..."

Fact Sheet: Helping Responsible Homeowners Avoid Foreclosure
"The Federal Government is collaborating with State and local partners to use the best tools available to keep homeowners in their homes. Americans need to know that help is available. The actions of the Federal Government are helping to address a key problem in the housing market: the excess supply of homes on the market. By helping responsible borrowers facing preventable foreclosures stay in their homes and ensuring that mortgage financing remains available to consumers, our housing market will be able to recover – and that recovery will help our broader economy grow..."