The Next Wave of Mortgage Profiteering

If there’s a lesson to be learned from the housing meltdown, it’s likely this: Where there’s a buck to be made, odds are there’s a scam being played.

At the peak of the housing bubble, it was mortgage companies like Countrywide, Wells Fargo, and Ameriquest, among many others, that used predatory lending practices and encouraged falsifiying homeowner information to sell now-toxic sub-prime mortgages. Today, as homeowners struggle to save their homes and search for any kind of lifeline to do so, a new brand of mortgage-industry profiteering is spreading: foreclosure rescue rip-offs.

• The Great American Mortgage Crisis

  Subprime loans are nothing short of financial blackmail.

• The Mortgage Rescue

• 35 Counties Account for 50% of Foreclosures

Here's how the scam works: A company reaches out to a cash-strapped homeowner through the mail, Internet, TV, radio, newspaper ads, or even by knocking on his or her door. The company's representative promises to help avoid foreclosure, either by acting as a negotiator, reworking the mortgage, or merely reviewing paperwork. Then, of course, the rep says it's time to pay up. But here's the rub: The rescue companies don't actually help at all, and numerous organizations provide legitmate assistance for free.

These rip-offs aren't isolated events, either. On Saturday, the Dayton Daily News reported that the Ohio Attorney General’s Office has in the past 21 months fielded more than 300 complaints against 136 companies that are in the "business" of foreclosure rescue. “The problem is these 'rescue scams' just take people's money and fail to do almost anything to help them avoid foreclosure," Iowa Attorney General Tom Miller said earlier this year. "And they take precious funds from people who are vulnerable and who can least afford to be cheated. This is the definition of adding insult to injury." 

What’s most disconcerting is that some of these companies allegedly pass themselves off as part of the government’s much needed home affordability programs. Take the case, cited in the Daily News, of 74-year-old Rev. Willie Marshall, who was swindled out of $1,400:

Like many foreclosure rescue scam victims, [Marshall] said he was contacted by a telemarketer and promised a new mortgage with payments that were one-third of his current monthly payments...[T]he caller said he was affiliated with the lender that owned his mortgage — Countrywide Home Loans. 

“He really played on us,” the 74-year-old Marshall said. “He said this was coming from (President) Obama. And I’m telling you, we ate that up. He seemed to be so honest, but he was phony as a $3 bill. He took our money and they haven’t done nothing.”

It is too late for Marshall, but the Federal Trade Commission has a fact guide that details how to avoid these schemes. While the FTC doesn't cite any ongoing action against these companies, the Indiana Attorney General's Office has already filed a lawsuit against one foreclosure relief company, Indianapolis-based Capital Foreclosure. Ohio and Iowa's attorneys general have set up fraud-reporting hotlines and advocated for preventative legislation.

Still, it begs the question: When are homeowners going to stop getting screwed?