Financial reform may do little to squash mortgage scams

While Congress was pushing through the nation’s toughest financial regulatory reform bill in decades last week, nine men were charged with nearly 100 counts of scamming more than $2 million from up-front fees charged to families across the nation.

Though the watchdog component of the new bill, the Consumer Financial Protection Bureau, will have an ability to develop and enforce new rules governing mortgage lending, it may end up doing little to protect consumers from mortgage-related scams, particularly those aimed at foreclosure rescue.

In 2009, 2.8 million foreclosure notice were delivered to American property owners, with one million properties in the pipeline and five million properties in serious delinquency. According to RealtyTrac, one in 389 housing units received a foreclosure filing in April 2010, while many lending institutions streamlined processes to work through backlogs, resulting the repossession of a record 92,432 properties in April.

Though the consumer financial protection agency promises to increase accountability among lending institutions, consumers will still need to beware of scam artists, who have historically targeted communities of color and the elderly, and who may use the uncertainty of the new regulatory reform to disguise their dishonest deeds.

To adequately protect ourselves and our communities from the deleterious effects of foreclosure rescue scams, consumers should only work with counselors that are HUD-approved, and should follow these simple guidelines:

•Never sign over your lease to anyone. A lease/buyback scheme has been a common scam used to lure property owners into a scenario where they turn over the deed to their home in exchange for the promise of a home saved from foreclosure and improved credit. In exchange, the troubled borrower makes a “lease” payment back to the new owner. Troubled borrowers should understand that the new owner can evict them at any time, and he/she is not obligated to sell the house back to them. Troubled borrowers who try this method of foreclosure rescue almost always lose their homes.

•Read documents carefully. Consumers should never sign any documents without reading them carefully. Some homeowners have been tricked into signing over the deed to their home because they thought they were signing documents to facilitate a loan modification.

•Steer away from forensic auditors claiming they can help for an upfront fee. Consumers should never pay for foreclosure mitigation counseling services, even if it is requested by someone claiming to be an auditor or other expert. Counseling and mitigation services are free from all HUD-approved agencies and lending institutions. Those who discourage direct contact with the lender and request an up front fee are usually insincere in their efforts.

A Consumer Financial Protection Bureau alone will not prevent consumers from being exploited by individuals and institutions seeking to profit from their misfortune. To file a report and learn about strategies to avoid foreclosure rescue scams, visit www.preventloanscams.org, a project of the Lawyers Committee for Civil Rights. Our ability to defend our communities from abuses will largely be informed by our willingness to alert others when injustices occur. Let’s speak up.