Backend Mortgage Fraud

Panelists discuss foreclosure fraud

May 22, 2006

By NEIL J. MORSE

It would be funny if it were not so damaging to so many parties in the mortgage transaction.

Troubled homeowners who have fallen behind in their loan payments are more likely to do business with wide-grinned scam artists practicing “foreclosure rescue fraud” than their loan servicing companies offering legitimate help. Its ironic these fraudsters offer to “rescue” borrowers when in fact the intent is to rob them of their money and homes.

Coming in many forms, the central lie behind this illegal practice is that it will get consumers out from under their mounting debt.

According to attorney Rachel Dollar of Santa Rosa, Calif., who has positioned herself as a national mortgage fraud expert, households late on their monthly payments are visited by “door knockers” offering to buy their houses for cash; or provide leasebacks, surplus funds or back-up financing — all of which turns out to be nothing but fraudulent.

The rot spreads into the secondary market as well, where unsuspecting investors hold these dying loans that, at best, fail to deliver the financial returns promised and at worst lead buyers into a tangle of litigation and law enforcement drama.

“[Investors] seldom realize they’re putting money into foreclosure properties,” Dollar told attendees of the Fraud Detection and Prevention Workshop hosted in San Antonio last week by the National Home Equity Mortgage Association.

This form of fraud is the “fastest growing and newest trend out there,” she said at a panel session, adding that though the approach may take many forms, “it always ends in eviction or foreclosure and loss of the house.”

Early intervention

Dollar and others — eager to help victims — advise mortgage servicers to intervene early in the delinquency time line, communicating better with late-payers and offering options to keep them at home and the loan performing — at least partially. Servicers also are urged to emphasize education, so borrowers will be less prone to come-ons from cheats.

Sounds righteous, but industry professionals say it is not that easy.

“Borrowers ignore our loss [mitigation] efforts,” reports Marge Stanish, loan default manager for Mid-America Mortgage in Downers Grove, Ill. “Then, they tell the judge they were never contacted,” she adds, exasperation evident in her tone.

“Still, if the fraudsters are the only ones telling borrowers what they want to hear,” says Bruce Gottschall, executive director of the Neighborhood Housing Service in Chicago, they’re likely to listen. He says rescue fraud has moved to “the seminar stage,” where hucksters teach people “to get rich quick,” through nefarious means.

Some trace the growing problem back to less worthy borrowers and more lenient loan origination terms that lull people into a lackadaisical mindset right from the start.

One executive of a prominent nonprime lender shrugs his shoulders describing today’s market. “People don’t stay in their houses more than a few years anymore and we’ve made it very easy to get in so when there’s a divorce or a job loss, they say: ‘Here’s the keys; take it’ (the house),” he laments — a case of easy come easy go.

That may be where consumer education becomes the real rescue option. “It’s the key to prevention,” insists Dollar.

Neil J. Morse is a communications consultant and independent writer working exclusively in the mortgage finance industry. He resides in Newtown, Conn. and may be reached by e-mail at: NeilMorse@MortgageDaily.com