The ink was barely dry on the government’s $25 billion mortgage settlement with the nation’s biggest banks earlier this year when scam artists seized on the opportunity.
In Alabama, struggling homeowners received calls promising them cash payments from the settlement, if only they would provide the routing number to their bank accounts. In Illinois, they were told they qualified under the settlement for a loan refinancing, but only after they paid a hefty upfront fee. In California, the attorney general herself received a call claiming that she was eligible for aid from the settlement.
“Every time there’s a new government program announced – in this case, it’s a very large settlement – scam artists use that as an opportunity to defraud people,” said Illinois Attorney General Lisa Madigan.
Madigan said her office has seen an “explosion” in such scams since the bottom fell out from under the housing boom in 2006. “As the economy goes, so goes our consumer fraud complaints,” she said.
Across the country, the combination of rampant foreclosures, desperate homeowners, record low interest rates and billions in available government aid have created fertile ground for scam artists, who have found new and creative ways to prey on the millions of Americans who owe more than their homes are worth.
State and federal authorities have stepped up efforts to curb mortgage-related crimes. They have hired more investigators and created special task forces. They have ramped up efforts to alert the public to scams. They have held mortgage fraud summits in hard-hit states such as California, Nevada and Florida. They have supported laws to ban the practice of demanding upfront fees from consumers. They have filed hundreds of lawsuits and sent out thousands of cease-and-desist orders to shady businesses.
Despite those efforts, the high levels of fraud persist.
“It’s like a game of whack-a-mole,” said Patrick Madigan, an assistant Iowa attorney general who headed efforts to negotiate the national mortgage settlement. “You hit one and four more pop up.”
No central database tracks cases across every jurisdiction – most consumer complaints are handled by state attorneys general, and only a fraction of cases ever reach federal authorities – but records that are available offer a glimpse at the depth and breadth of the problem.
During the past three fiscal years, the Justice Department has filed nearly 1,500 mortgage fraud cases against nearly 3,000 defendants, according to an agency representative. During that same stretch, the department saw a 92 percent increase in the number of mortgage-fraud prosecutions.
FBI agents also have worked on a record volume of cases in recent years. The overwhelming majority used to involve fraud related to the origination of mortgages, but now about 40 percent of the bureau’s case load involves homeowner-rescue schemes, said Timothy A. Gallagher, the FBI’s section chief for financial crimes.
Some critics argue the authorities haven’t yet prosecuted bank executives whose firms’ risky behavior precipitated the housing bust and hurt far more homeowners than small-time crooks.
Still, the lower-level prosecutions show the measured success authorities have had rooting out fraud further down the financial totem pole, particularly when it comes to swindling consumers and lying to banks and regulators.
In Nevada, which experienced one of the country’s highest foreclosure rates, the authorities are investigating 84 cases of mortgage fraud as of July, compared with 21 cases a year earlier, said Russell D. Smith, the state’s chief deputy attorney general. In one case, letters on Bank of America letterhead were sent to homeowners with offers to help modify their loans for $6,000; the offers, of course, were not from Bank of America.