Thursday, March 27, 2008

Mortgage Scams

U.S. Officials Warn of ScamsTargeting Homeowners
By Evan Perez From The Wall Street Journal Online

Federal officials say a wave of opportunistic scams are targeting homeowners trying to avoid foreclosure in the current housing downturn.
Monday, prosecutors in California unsealed twin cases against 19 people who, according to agents from the Federal Bureau of Investigation and the Internal Revenue Service, skimmed nearly $13 million in equity from 115 homeowners coast to coast under the guise of a mortgage rescue.

Real-estate scammers "took advantage of the elevated market that peaked in 2005, and here now the vultures are waiting as the market goes down," said U.S. Attorney McGregor Scott of Sacramento.

The indictments come as officials debate how to soften the blow of the housing and credit-markets turmoil on the U.S. economy. Some in Congress suggest that following the federally backed rescue of Bear Stearns Cos., similar efforts should be made to bail out homeowners, many of whom took on loans with payments that have risen to levels now beyond their means.
Federal investigators say they expect the number of people ensnared in fraudulent foreclosure schemes to grow given such financial straits. The Mortgage Bankers Association said a record 2% of the nation's 46 million mortgage loans were in the foreclosure process at the end of the fourth quarter. The number of defaults on first mortgages is forecast to rise to 1.9 million this year from 1.4 million in 2007, according to a report by using FDIC and other data.

Prosecutors said the cases involved a fraud ring led by Charles Head, 33 years old, of La Habra, Calif., and operated through companies called Head Financial Services Inc., Creative Loans LLC and Loan Foreclosure Help Inc. Ann Hwong, who represented Mr. Head at a federal detention hearing in Orange County Friday, didn't respond to a call requesting comment. Mr. Head is scheduled to make his first appearance in a federal court in Sacramento later this week.

Typically, prosecutors said, the scam worked this way: Sales agents for the ring contacted homeowners through mailings, offering rescue plans to those who appeared on lists used by banks and credit agencies to show owners near foreclosure. When the homeowners sought help, sales agents would steer them into a plan that called for owners to put an "investor" on the home's title.

In exchange, the homeowner would pay rent to the investor, typically a sum smaller than the original mortgage payment. In reality, the investor was usually an associate or family member of the ringleaders or someone recruited via the Internet. The convoluted paperwork often gave the investor the right to replace the homeowner on the title.

Within months, prosecutors said, the ring would take out a new mortgage on the property, to take out the equity. Homeowners either were evicted or ended up in foreclosure when the investor stopped making payments on the new loan.

In one instance described in indictments unsealed Monday, prosecutors said members of the ring transferred the title of a home in Sacramento to an "investor," who is among those indicted. The transfer occurred Oct. 4, 2004. One month later, the alleged fraudsters filed a new mortgage-loan application. By Nov. 11, 2004, they had netted $89,142 in proceeds from the equity of the home, which they wired to accounts they owned, prosecutors said.

Justice Department officials in Washington said they haven't decided whether the cases being brought around the nation are similar enough to justify a centrally run "task force" akin to that created to coordinate the white-collar crime investigations. The FBI is investigating 17 companies involved in various parts of the business of packaging and selling loans to investors. One such investigation is targeting Countrywide Financial Corp., a top seller of subprime loans, according to people familiar with the situation. A Countrywide spokeswoman declined to comment.

Sharon Ormsby, FBI financial-fraud section chief in Washington, said foreclosure scams are on the rise because tightening of the housing market essentially eradicated past swindles such as use of straw buyers.
-- March 26, 2008

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