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entitled 'Homeownership Preservation: Federal Efforts to Combat
Foreclosure Rescue Schemes Are Under Way, but Improved Planning
Elements Could Enhance Progress' which was released on August 16,
2010.
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
July 2010:
Homeownership Preservation:
Federal Efforts to Combat Foreclosure Rescue Schemes Are Under Way,
but Improved Planning Elements Could Enhance Progress:
GAO-10-787:
GAO Highlights:
Highlights of GAO-10-787, a report to congressional requesters.
Why GAO Did This Study:
One of the most devastating aspects of the current financial crisis
for homeowners is the prospect of losing their homes to foreclosure,
and many homeowners have fallen victim to foreclosure rescue and loan
modification schemes. In 2009, the administration created the
Financial Fraud Enforcement Task Force (FFETF), which is led by the
Department of Justice (DOJ), to combat these and other financial
crimes. This report examines (1) the nature and prevalence of these
schemes, (2) federal efforts coordinated to combat these schemes and
other major efforts, and (3) factors that may affect federal efforts’
success in combating these schemes. To address these objectives, GAO
obtained information from federal agencies participating in the FFETF
and interviewed representatives of five states with high exposure to
potential foreclosures and nonprofit organizations undertaking related
activities.
What GAO Found:
Although data that would establish the prevalence of foreclosure
rescue and loan modification schemes are limited, officials told GAO
that these schemes can take several forms—the most active scheme is
one in which individuals or companies charge a fee for services not
rendered. Agency and nonprofit officials said that the perpetrators of
these schemes are likely to be former mortgage industry employees,
professional scam artists, and unethical attorneys and that the range
of potential victims is wide. Law enforcement officials said that the
nature of the schemes makes them difficult to combat because they can
easily be conducted by Internet or across state lines. While law
enforcement agencies and nonprofits have information, such as research
studies and consumer complaints, that supports their belief that these
schemes are widespread, there are no nationwide data that can reliably
be used to describe their prevalence.
Collaborative federal law enforcement efforts and other coordinated
efforts involving federal and private organizations are under way to
combat foreclosure rescue and loan modification schemes. The FFETF was
established in November 2009 to strengthen the efforts of federal,
state, and local agencies to investigate and prosecute a variety of
financial crimes, including foreclosure rescue and loan modification
schemes. Prior to the FFETF, the administration announced a
multiagency effort to combat these schemes in April 2009, for which
agencies, notably the Financial Crimes Enforcement Network and the
Federal Trade Commission, took supporting actions. The FFETF’s
Mortgage Fraud Working Group, which has primary responsibility for
coordinating activities related to these schemes, has focused on
facilitating communication and exchanging information among law
enforcement agencies by sponsoring training sessions and conferences.
In addition to the FFETF, there are other major coordinated efforts
aimed at combating these schemes, such as a public-private effort that
focuses primarily on consumer education and outreach.
Several factors may affect federal efforts to combat foreclosure
rescue and loan modification schemes, and lack of a clear, long-term
strategy could limit the FFETF’s effectiveness. Key factors affecting
federal success in combating these schemes include educating consumers
about them and coordinating federal and state law enforcement efforts.
The Mortgage Fraud Working Group has created an action plan that
partly addresses these factors but does not fully incorporate certain
key practices to enhance and sustain interagency collaboration. In
particular, the plan largely focuses on short-term strategies, does
not clearly identify members’ roles and responsibilities, and does not
clearly identify performance indicators that would allow it to measure
progress over time. In addition, the plan outlines strategies for
addressing mortgage fraud as a whole and identifies few specific
approaches to combating foreclosure schemes. Without long-term
strategies and performance measures specific to foreclosure schemes,
the working group may be limited in its ability to combat these
schemes.
What GAO Recommends:
GAO is recommending that the U.S. Attorney General direct DOJ to
develop clear, long-term strategies and performance measures that DOJ
can use to evaluate its progress toward combating mortgage fraud, and
consider developing strategies specific to foreclosure rescue schemes.
DOJ concurred with these recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-787] or key
components. For more information, contact Mathew J. Scirč at (202) 512-
8678 or sciremj@gao.gov.
[End of section]
Contents:
Letter:
Background:
Schemes Often Involve Fees for Services Not Rendered, and Although
Data Are Limited, Federal and State Officials Consider Them to Be an
Important Problem:
Federal Efforts to Combat These Schemes Are Part of a Broader Focus on
Mortgage Fraud, and a Public-Private Effort Focuses on Consumer
Education:
Several Factors Could Affect the Federal Government's Success and the
Working Group's Efforts May Be Limited by Weaknesses in Its Planning:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Justice:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Select Federal and State Agencies Involved in Combating
Financial Crimes:
Figures:
Figure 1: Number of Home Loan Payments More Than 60 Days Past Due, by
State:
Figure 2: Illustration of an Advance-Fee Loan Modification Scheme:
Abbreviations:
BSA: Bank Secrecy Act:
DOJ: Department of Justice:
EOUSA: Executive Office for U.S. Attorneys:
FBI: Federal Bureau of Investigation:
FFETF: Financial Fraud Enforcement Task Force:
FHA: Federal Housing Administration:
FinCEN: Financial Crimes Enforcement Network:
FTC: Federal Trade Commission:
GSE: government sponsored enterprise:
HAMP: Home Affordable Modification Program:
HUD: Department of Housing and Urban Development:
OCC: Office of the Comptroller of the Currency:
SAR: Suspicious Activity Report:
SIGTARP: Special Inspector General for the Troubled Asset Relief
Program:
USPIS: U.S. Postal Inspection Service:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 15, 2010:
The Honorable Bobby L. Rush:
Chairman:
Subcommittee on Commerce, Trade, and Consumer Protection:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Doris Matsui:
House of Representatives:
One of the most devastating aspects of the current foreclosure crisis
is the prospect that homeowners who cannot afford their mortgage
payments will lose their homes to foreclosure. The dramatic increase
in the number of homes entering foreclosure since 2005--a record high
of over 2 million in the foreclosure inventory in 2009--has presented
opportunities for some individuals and companies to take advantage of
homeowners through schemes that promise but do not deliver relief from
pending foreclosures. These deceptive practices, which typically cost
homeowners thousands of dollars that they can ill afford to spend, are
broadly referred to as foreclosure rescue schemes. Loan modification
schemes are a type of foreclosure rescue scheme in which homeowners
are steered away from legitimate free sources of loan modification
assistance, such as those provided by both the federal government and
private financial institutions.
The concern that homeowners seeking to save their homes from
foreclosure can become vulnerable to these schemes has attracted the
attention of consumer advocates, regulators, and law enforcement
agencies. In April 2009, four federal agencies--the Federal Trade
Commission (FTC) and the Departments of Justice (DOJ), the Treasury
(Treasury), and Housing and Urban Development (HUD)--and the Illinois
State Attorney General announced efforts to coordinate information and
resources across agencies to combat these schemes and educate
consumers. On November 17, 2009, in response to concerns about a broad
range of financial crimes relating to the current financial crisis and
economic recovery efforts, including foreclosure rescue schemes, the
President established the Financial Fraud Enforcement Task Force
(FFETF) under the leadership of the U.S. Attorney General to
strengthen the efforts of DOJ in conjunction with federal, state, and
local agencies to investigate and prosecute these crimes. In addition,
other federal, state, local, private, and nonprofit agencies have
launched cooperative efforts to reach out to consumers who have
experienced foreclosure rescue and loan modification schemes and to
help others avoid these schemes.
In light of these concerns, as agreed with your offices, we examined
(1) what is known about the nature and prevalence of mortgage
foreclosure rescue and loan modification schemes, (2) the status and
scope of the federal government's multiagency effort to combat these
schemes and other major efforts, and (3) the factors that may affect
the likelihood that federal efforts will succeed in combating these
schemes.
To determine what is known about the nature and prevalence of mortgage
foreclosure rescue and loan modification schemes, we contacted
representatives of the four federal agencies--DOJ, FTC, Treasury, and
HUD--that were identified as participants in the initiative to combat
these schemes in press releases issued in April 2009. In addition, we
contacted representatives of five states that have high numbers of
potential foreclosures--Arizona, California, Florida, Illinois, and
New York--and national nonprofit organizations and other associations
that we identified as actively engaged in addressing these schemes to
discuss the nature and prevalence of the schemes. To identify the
status and scope of the federal government's multiagency effort and
other major efforts to combat these schemes, we interviewed and
obtained related documentation from the FFETF's leadership and
Mortgage Fraud Working Group; the four federal agencies that we have
previously mentioned; and organizations sponsoring major efforts in
this area, including the members of the Loan Modification Scam
Prevention Network. To identify what factors may affect the likelihood
that federal efforts will succeed in combating these schemes, we
analyzed information from federal and state agencies and national
nonprofit organizations describing challenges to combating foreclosure
rescue and loan modification schemes. We also used our prior work on
practices that can help sustain collaboration among federal agencies
to assess FFETF planning efforts to date and the likelihood that its
efforts will succeed in combating these schemes.[Footnote 1] See
appendix I for more detailed information on the scope and methodology
of the report.
We conducted this performance audit from September 2009 to July 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
The current foreclosure crisis has provided persons who may perpetrate
mortgage foreclosure rescue and loan modification schemes with
unprecedented opportunities to profit from homeowners desperate to
save their homes. In March 2010, we reported that national default and
foreclosure rates rose sharply from 2005 through 2009, to the highest
level in 29 years.[Footnote 2] The most recent data from the Mortgage
Bankers Association, which are for the first quarter of 2010, show
that the number of home loans with payments more than 60 days past
due, and therefore potentially facing foreclosure, is 2.7 million. As
shown in figure 1, California and Florida have the highest numbers of
potential foreclosures. The foreclosure process has several possible
outcomes, but the homeowner generally loses the property, typically
because it is sold to repay the outstanding debt or is repossessed by
the lender.
Figure 1: Number of Home Loan Payments More Than 60 Days Past Due, by
State:
[Refer to PDF for image: map of the U.S.]
Number of Home Loan Payments More Than 60 Days Past Due:
25,000 or less:
Alaska: 2,327;
Arkansas: 13,818;
Delaware: 8,336;
District of Columbia: 4,615;
Hawaii: 8,071;
Idaho: 12,183;
Iowa: 12,843;
Kansas: 12,788;
Kentucky: 20,621;
Maine: 7,168;
Mississippi: 18,895;
Montana: 4,076;
Nebraska: 6,595;
New Hampshire: 9,969;
New Mexico: 11,484;
North Dakota: 987;
Oklahoma: 17,606;
Rhode Island: 9,855;
South Dakota: 1,894;
Utah: 23,043;
Vermont: 2,088;
West Virginia: 6,546;
Wyoming: 2,030.
25,001 to 50,000:
Alabama: 35,177;
Colorado: 40,310;
Connecticut: 28,576;
Louisiana: 27,451;
Massachusetts: 48,428;
Minnesota: 38,627;
Missouri: 44,425;
Oregon: 26,825;
South Carolina: 38,036;
Wisconsin: 27,636.
50,001 to 75,000:
Indiana: 50,778;
Maryland: 70,500;
Nevada: 59,907;
New Jersey: 74,169;
Tennessee: 51,319;
Virginia: 65,846;
Washington: 61,321.
75,001 to 100,000:
Arizona: 98,674;
North Carolina: 77,976;
Ohio: 87,570;
Pennsylvania: 78,249.
100,001 or more:
California: 485,195;
Florida: 279,373;
Georgia: 129,730;
Illinois: 118,692;
Michigan: 108, 667;
New York: 119,829;
Texas: 155,926.
Sources: GAO analysis of the Mortgage Bankers Association’s National
Delinquency Survey data (first quarter, 2010); Art Explosion (map).
[End of figure]
In response to the rising number of defaults and foreclosures, the
administration announced the Making Home Affordable Program in
February 2009, which includes a number of programs intended to assist
homeowners facing potential foreclosure, including the Home Affordable
Modification Program (HAMP). Under HAMP, Treasury shares the cost of
reducing the borrower's monthly mortgage payments with mortgage
holders and investors so that homeowners might realize a reduction in
their monthly mortgage payments.[Footnote 3] In addition to HAMP,
there are other foreclosure prevention programs aimed at providing
assistance to homeowners, including both governmental and private
programs. For example, the government sponsored enterprises (GSE)
Fannie Mae and Freddie Mac have their own loan modification programs.
Refinances are also available under the GSE Home Affordable Refinance
Programs, and the Federal Housing Administration's (FHA) Hope for
Homeowners Program, which permits eligible homeowners to lower their
monthly mortgage payments by refinancing their mortgage loans into
fixed-term market rate loans. In addition, individual private
financial institutions offer their own proprietary loan modification
programs for homeowners who do not qualify for HAMP. Moreover, free
counseling services, such as those provided by HUD-certified
counseling agencies, are available to homeowners seeking to avoid
foreclosure. One way that homeowners can access these counseling
services is by calling the Homeowner's HOPE™ Hotline (1-888-995-HOPE),
which is run by a nonprofit organization that works with a coalition
of governmental agencies, financial services institutions, and other
nonprofit groups to help homeowners struggling to make their monthly
mortgage payments.
A number of federal and state law enforcement agencies perform
different roles and use different legal authorities in their efforts
to combat various types of financial-and mortgage-related crimes,
including protecting consumers from foreclosure rescue and loan
modification schemes (see table 1). Within the federal government,
FTC, the U.S. Postal Inspection Service, and agencies within DOJ and
Treasury all have key roles regarding the investigation and
prosecution of persons who have engaged in these types of schemes. As
we discuss later in this report, State Attorneys General and
regulatory agencies also play key roles in combating these schemes.
Table 1: Select Federal and State Agencies Involved in Combating
Financial Crimes:
Agency: FTC;
Role in combating crime: FTC enforces the Federal Trade Commission
Act--which prohibits unfair or deceptive acts or practices--with
nonbank financial institutions, such as mortgage brokers (see 15
U.S.C. §§ 41-58). FTC conducts its own investigations and has civil
enforcement authority.
Agency: DOJ - Federal Bureau of Investigation (FBI);
Role in combating crime: FBI conducts investigations into a range of
financial criminal activities. Its National Mortgage Fraud Team
focuses on fraud schemes that involve financial institutions,
particularly in the areas of mortgage fraud and bank failures. FBI
also participates in 67 mortgage fraud working groups and 23 regional
task forces across the country.
Agency: DOJ - U.S. Attorneys;
Role in combating crime: The U.S. Attorneys are the federal
government's principal litigators and are appointed by the President
of the United States with the advice and consent of the U.S. Senate.
There are 93 U.S. Attorneys stationed throughout the United States and
its territories. Each U.S. Attorney's office has discretion over its
distribution of cases and use of resources on the basis of the
priorities and needs of local jurisdictions and communities, therefore
the types of cases vary. The Executive Office for U.S. Attorneys
within DOJ provides the U.S. Attorneys with general executive
assistance and direction, policy development, administrative
management direction and oversight, and operational support and helps
the U.S. Attorneys coordinate with other components within DOJ and
other federal agencies.
Agency: U.S. Postal Inspection Service (USPIS);
Role in combating crime: USPIS enforces laws against mail fraud to
protect customers from misuse of the postal system, such as when
individuals send mailings with deceptive information or use the mail
to defraud, endanger, or threaten people.
Agency: Treasury - Financial Crimes Enforcement Network (FinCEN);
Role in combating crime: FinCEN was established in 1990 to provide a
governmentwide financial intelligence and analysis network for law
enforcement and in 1994, was delegated authority to administer the
Bank Secrecy Act (BSA), which resulted in an expansion of its
operation to include regulatory responsibilities. To assist more than
275 federal and state law enforcement agencies in their efforts to
combat money laundering, terrorist financing, and other financial
crimes, BSA authorizes FinCEN to require financial institutions to
make reports and maintain records on certain financial transactions
that have a high degree of usefulness in criminal, tax, or regulatory
investigations or proceedings, or in the conduct of intelligence or
counterintelligence activities, including analysis, to protect against
international terrorism.[A].
Agency: State Attorneys General;
Role in combating crime: State Attorneys General investigate and
prosecute violations of state laws regarding unfair and deceptive
practices and fraud.
Agency: State regulatory agencies;
Role in combating crime: State regulatory agencies, such as those
regulating the mortgage industry or financial institutions, enforce
state laws and requirements and may license individuals and companies
engaged in mortgage activities.
Source: GAO.
[A] 31 U.S.C. § 5311. BSA requires financial institutions to file
Suspicious Activity Reports to inform the federal government of
transactions related to possible financial crimes. 31 U.S.C. § 5318(g).
[End of table]
Schemes Often Involve Fees for Services Not Rendered, and Although
Data Are Limited, Federal and State Officials Consider Them to Be an
Important Problem:
Officials with whom we spoke described several deceptive practices
relating to foreclosure rescue and loan modification schemes that
victimize vulnerable homeowners. Most officials are currently
concerned with one particular loan modification scheme in which
persons engaging in a scheme to defraud homeowners charge a fee in
advance (typically, a fee of thousands of dollars) for the service of
ensuring the modification of their mortgage loan to a loan with lower
monthly payments, but they do not provide this service. Law
enforcement officials reported that these schemes are difficult to
combat because persons engaging in such schemes can start up or shut
down their activities quickly and can do so across state lines.
Although data that can provide a reliable indicator of prevalence are
limited, information available to federal and state agencies and
nonprofit organizations, such as consumer complaints and the number of
enforcement actions, suggests that these schemes are a problem.
Methods, Persons Engaging in and Victims of Schemes Vary, Although
Schemes Often Involve Fees Charged in Advance for Services Not
Rendered:
Many federal and state officials that we interviewed identified the
following two principal types of foreclosure rescue and loan
modification schemes perpetrated against consumers: advance-fee loan
modification schemes and sales-leaseback schemes. These officials more
often pointed to the advance-fee loan modification scheme as the type
currently most prevalent. These schemes are broadly described as
follows:
* Advance-fee loan modification schemes: Federal and state officials
with whom we have spoken, as well as nonprofit studies, reported that
these schemes take the form of a person charging a fee in advance to
negotiate someone's mortgage with the mortgage lender, often with a
money-back guarantee, then providing little or no services and not
refunding the fee. In 25 of the 28 enforcement actions that FTC
brought in 2008 and 2009 on the basis of foreclosure rescue and loan
modification schemes, FTC alleged that the defendants charged an
advance fee for services that were not performed. In addition,
information that the Lawyers' Committee for Civil Rights Under Law
(Lawyers' Committee) provided to us indicated that as of May 7, 2010,
the average amount paid by homeowners for services they reported that
they did not receive is about $3,000.[Footnote 4] A National Community
Reinvestment Coalition--a nonprofit organization--study and an FTC
press release, also indicated that persons engaged in this type of
scheme may make misrepresentations to consumers regarding their
ability to obtain a loan modification, such as claiming high success
rates or special relationships with mortgage lenders.[Footnote 5] For
example, 9 of FTC's 28 enforcement actions alleged that the defendants
misrepresented their affiliation with the federal government, a
mortgage servicer or lender, or a nonprofit organization. In addition,
as reported by FTC and evidenced by research conducted by the National
Community Reinvestment Coalition, these schemes put homeowners in
further jeopardy of losing their homes because they were instructed
not to pay their mortgage or not to talk with the servicer, thereby
increasing the likelihood that they would lose their home to
foreclosure. See figure 2 for an illustration of how this scheme may
work.
Figure 2: Illustration of an Advance-Fee Loan Modification Scheme:
[Refer to PDF for image: illustration]
Desperate homeowner (may be in foreclosure or have delinquent
payments):
Foreclosure loan modification operation:
Foreclosure prevention offer may come by telephone, direct mail,
Internet/radio/television ad, etc. such as:
"98% success rate: call now!"
"Money back guarantee."
"We have specialized experts."
Homeowner pays advance fee of $3,000 (homeowner may be instructed not
to pay or talk to mortgage servicer);
Weeks pass with little or no action taken by loan modification
operation;
Foreclosed:
Homeowner loses advance fee and potentially his or her home.
Sources: GAO analysis of information and publications from FTC and
nonprofit organizations; Art Explosion (images).
[End of figure]
* Sales-leaseback schemes: An FTC official, state officials from three
of our five case-study states, and two recent nonprofit studies also
cited another type of foreclosure rescue scheme.[Footnote 6] The names
used to describe the schemes vary, and the methods vary as well.
Federal agencies and nonprofit sources explain that these schemes
generally involve someone convincing a homeowner at risk of
foreclosure to transfer the deed of their home to them as a means of
saving the home from foreclosure. The person then has control of the
property and can make money by either taking out a second loan on the
home or selling the home. According to these sources, the original
homeowner is permitted to lease the home from the person engaging in
the scheme and told that he or she may buy the property back in the
future. However, the person engaging in the scheme may have no
intention of selling the property back to the original homeowner and
may make the terms of the buy-back agreement too difficult for the
original owner to comply with, thereby resulting in the homeowner
losing the property. FTC and state officials believe that these
schemes were more predominant before the decline in housing prices
because higher housing prices provided more equity for persons
engaging in the scheme to take from a homeowner, and the loans needed
to refinance the homes were more readily available.
Information provided by federal and state officials indicates that
newer schemes have been emerging. For example, a March 2010 FTC
consumer alert warned consumers to watch out for a forensic mortgage
loan audit scam, which it explained as a "new twist on foreclosure
rescue fraud." In this scheme, someone charges a fee to conduct an
"audit" intended to find regulatory violations in the mortgage loan
origination in order to allow the homeowner to use the "audit" results
to avoid foreclosure, accelerate the loan modification process, reduce
the loan principal, or even cancel the loan. According to the FTC
consumer alert, there is no evidence that forensic mortgage loan
audits will help borrowers obtain a loan modification or any other
foreclosure relief, even if the audits are conducted by a licensed,
legitimate, and trained auditor; mortgage professional; or lawyer.
Similarly, in May 2010, based on information provided in Suspicious
Activity Reports (SAR), FinCEN described variations of advance-fee
scams in which a person promises to eliminate a homeowner's mortgage
or other debt on the premise that the debts were illegal or the
government would assume responsibility.[Footnote 7]
Federal and state officials and representatives of nonprofit
organizations told us that persons who have conducted foreclosure
rescue schemes include former mortgage industry professionals who had
been involved in the subprime market; career scam-artists; and
licensed professionals, such as attorneys who allow their names or
licenses to be used by those perpetrating schemes to add credibility
to their promises to provide relief. Federal and state officials and
nonprofit representatives explained that former mortgage industry
professionals who had been involved in subprime lending became
involved in these schemes because their businesses had slowed due to
the foreclosure crisis and they were looking for new sources of
income. In addition, Federal Bureau of Investigation (FBI) officials
noted that career scam-artists gravitate toward these types of schemes
whenever the federal government creates programs to assist people in
desperate circumstances, such as the programs the government began
promoting in early 2009, because scam-artists can claim that they are
affiliated with a federal program as a way to gain people's trust. As
indicated by an official from the Florida State Attorney General's
office, because of coverage in the news media and other public
sources, federal programs provide scam-artists with a "new script"
with which they can attract consumers. Officials from four of our five
case-study states also said that attorneys can provide cover for third
parties that perpetrate these schemes, particularly in states that
have laws that prohibit firms from charging advance fees but have
exemptions for licensed attorneys. Most notably, the State Bar of
California, according to one if its officials, created an internal
task force to investigate consumer complaints related to loan
modification companies in California because complaints had increased
significantly between December 2008 and March 2009 regarding attorney
involvement in loan modification schemes. During this period,
according to the official, companies recruited attorneys to circumvent
the state law prohibiting advance fees.
Although federal and state officials lack comprehensive information on
the potential victims of these schemes, officials believe that
potential victims are likely to include anyone desperate to save their
home from foreclosure, regardless of their economic status or
demographic characteristics. For example, many federal and state
officials said that persons engaging in these schemes will target
anyone having difficulty in paying their mortgage loan, and an FTC
official and officials from two of our case-study states said that
even wealthy individuals or professionals may become victims of these
schemes if they are unable to pay their mortgage. However, officials
from three of our case-study states also said that they were
specifically aware of schemes in which a particular ethnic or
religious community was targeted. As explained by one state official
and a representative of a local housing nonprofit organization, in
these cases, persons engaged in the schemes gained the trust of those
within the community because they spoke the same language as the
homeowners or had emigrated from the same country.
Nature of These Schemes Makes Them Difficult to Combat, and Legal
Approaches Vary by State:
State law enforcement officials noted that these schemes are difficult
to combat because state law enforcement authorities are often unable
to locate the persons who committed the schemes or provide restitution
to the victims. Federal and state officials also said that loan
modification schemes in particular are difficult to combat because
companies can easily start up and shut down and can be run solely on
the Internet. In addition, as explained by California and Florida
officials, persons engaging in the schemes often run large-scale
operations across state lines, using methods similar to those of
telemarketing schemes that allow them to solicit customers nationwide.
In these operations, a California state official said, most of the
employees work in sales, soliciting customers and obtaining payments,
while performing no work on behalf of the customers. Because these
schemes are operated across state lines, several state officials told
us, they are more difficult for state law enforcement to combat.
Officials said that pursuing out-of-state companies adds increased
difficulties in litigating and enforcing judgments for State
Attorneys' General offices because they have no jurisdiction over
companies being operated across state lines.
In addition, legal restrictions and authorities vary by state in terms
of what are considered to be prohibited practices regarding these
schemes. FTC has proposed a rule that would, among other things,
prohibit for-profit companies from being paid until they provide the
promised services.[Footnote 8] Four of our case-study states--
California, Florida, Illinois, and New York--have passed specific laws
prohibiting companies that provide these services from collecting fees
in advance, and officials from these states noted that these laws have
helped them to take action against perpetrators of these schemes,
although a Florida official said that these schemes persist despite
the existence of the law.[Footnote 9] They explained that the
existence of these laws generally allows them to cite a violation
without having to otherwise prove criminal intent, which they
explained can be more difficult to establish.
Although Data That Can Be Used to Describe the Prevalence of Schemes
Are Limited, Some Information Suggests That Schemes Are an Important
Problem:
Federal law enforcement agencies with key roles in combating these
schemes--FTC, FBI, and the Executive Office for U.S. Attorneys
(EOUSA)--had limited information that could be used to describe their
prevalence, but most officials with whom we spoke considered these
schemes to be an important consumer protection issue.[Footnote 10] Of
these three agencies, only FTC had data directly pertaining to these
schemes. While this data does not serve as a precise indicator of
prevalence, FTC officials said that the number of enforcement actions
they sponsored in 2008 and 2009 (i.e., 28), as well as the 71 warning
letters they sent in response to their 2009 investigation of related
Internet advertising indicated to them that these schemes pose a
problem for consumers. In response to this concern, FTC provided
consumers with the option of identifying these schemes on its 2009
Internet complaint form, but FTC officials stressed that while these
data indicated a problem, they could not be used as a measure of
prevalence for a number of reasons, one of which is that the data were
self-reported resulting in a nonstatistically valid sample that cannot
be used to predict the prevalence of the problem.[Footnote 11] FBI
officials told us that they considered these schemes to be a problem
on the basis of information received from their 56 field offices--50
percent of which reported the schemes as prevalent and another 20
percent of which identified them as emerging schemes--as well as their
review of SARs that FinCEN collects from financial institutions.
[Footnote 12] However, they could not identify the number of
investigations they had undertaken, and FBI only developed plans to
modify its case support system to track this information during the
course of our investigation.[Footnote 13] Because the EOUSA case
management system does not differentiate among the different types of
mortgage fraud, no statistical information is available regarding the
number of cases involving foreclosure rescue schemes in U.S.
Attorney's offices. However, some U.S. Attorneys in our five case-
study states provided anecdotal observations that support their belief
that these schemes are a problem.
While several law enforcement representatives, including those of FBI
and EOUSA, referred us to SARs as a potential indicator of prevalence,
FinCEN officials said that these reports had limited use for this
purpose due to the many variables associated with SAR filings.
[Footnote 14] FinCEN reported that analyses of SARs could increase law
enforcement's understanding of the crime--for example, by identifying
the techniques used by the persons perpetrating the schemes--but
FinCEN officials said that these analyses were of limited usefulness
for estimating prevalence.[Footnote 15] The officials noted that the
primary purpose of SARs is to provide information on known or
suspected violations of financial laws or regulations--such as those
prohibiting money laundering or credit card fraud, rather than, for
example, providing information on the specific types of businesses
involved. In addition, FinCEN analysts indicated that many of the
activities reported in SARs were anywhere from 12 to 18 months old,
generally due to a lack of awareness of wrongdoing on the part of the
financial institution at the time the activity occurred.[Footnote 16]
Similar to FTC, law enforcement officials from our five case-study
states told us that these schemes were a significant problem, based on
the number of enforcement actions their agencies have taken pursuant
to these schemes or on the number of consumer complaints they have
received. The California Department of Real Estate described these
schemes as the biggest consumer fraud it faced in 2009 and said that
they initiated over 2,000 investigations into potential loan
modification schemes in that year. The California State Attorney
General's office was pursuing 5 civil and 4 criminal cases as of June
2010, which the official with whom we spoke considers to be a
relatively high number for its office. Similarly, a representative of
the Florida State Attorney General's office said that in 2009,
mortgage foreclosure rescue scams were the most common category of
consumer complaint that his office received, although as of March 31,
2010, these complaints had fallen to second position. Representatives
of the Arizona, Florida, Illinois, and New York State Attorney
General's offices similarly reported taking enforcement actions
against mortgage fraud cases in general, with foreclosure rescue cases
sometimes accounting for the majority of these actions. The
representative of the Illinois State Attorney General's office noted
that due to the number of consumer calls related to these schemes,
staff members provide responses to general loan modification questions
for callers in addition to handling their law enforcement duties.
Representatives that we interviewed of nonprofit organizations
involved in housing or related issues (the Homeownership Preservation
Foundation, the Lawyers' Committee, the National Community
Reinvestment Coalition, the National Consumer Law Center, and
NeighborWorks America®) likewise reported that they did not have data
that could be used to reliably describe the prevalence of the schemes,
but that they consider them to be a problem on the basis of research
they have conducted or information available to them.[Footnote 17]
This information included the following:
* Reports about potential schemes submitted to the Homeowner's HOPE
Hotline: The Homeownership Preservation Foundation, which sponsors the
Homeowner's HOPE Hotline, has tracked the number of times consumers
have reported that they believe they have been victims of scams. These
statistics indicate that from June 2009, when these statistics were
first kept, until May 9, 2010, about 10,500 callers reported their
belief that they had been scam victims. While these calls represent
about 1 percent of callers to the hotline, the foundation believes
they indicate a national problem and in February 2010 dedicated a team
to request specific information about the callers' experiences.
[Footnote 18] Homeownership Preservation Foundation representatives
told us that this number likely underestimates the number of callers
to the hotline who may have been scammed, because some callers may not
realize that they have been involved with a scam and therefore may not
report it and the foundation has not actively screened calls for
possible victims of scams.
* Mystery shopping by the National Community Reinvestment Coalition:
To address concerns about these schemes, in mid-2009, the National
Community Reinvestment Coalition used mystery shoppers--that is,
individuals who posed as borrowers delinquent in their mortgage
payments--to call national and local foreclosure prevention service
providers to ascertain the nature of their services. While this study
did not determine whether the assistance would actually have been
provided, it did identify practices that would have been very
troubling to homeowners. For example, in over 50 percent of the
telephone calls, the service providers advised the mystery shoppers
not to pay their mortgage and charged fees that ranged from $199 to
$5,600 for different levels of service.[Footnote 19]
The potential indicators of prevalence used by the agencies we
contacted, such as the number of consumer complaints and law
enforcement actions, all have limitations. As FTC noted, consumers can
file complaints with any number of federal or state agencies, which
makes the complaints difficult to aggregate. Furthermore, FTC noted
that it does not have the resources to validate the large number of
self-reported complaints it receives each year and these complaints
may still only represent only a small portion of potential schemes.
Also, as explained by several law enforcement officials, information
on the number of enforcement actions is an imperfect measure of
prevalence because the information is not always timely (i.e., cases
may be prosecuted years after a crime has occurred), and the number of
actions an agency can prosecute is dependent on its priorities and
available resources.
Federal Efforts to Combat These Schemes Are Part of a Broader Focus on
Mortgage Fraud, and a Public-Private Effort Focuses on Consumer
Education:
The primary multiagency effort to combat financial crimes, including
foreclosure rescue schemes, is the FFETF, which an executive order
established in November 2009.[Footnote 20] According to members with
whom we spoke, the FFETF expanded previous federal efforts to combat
foreclosure rescue schemes. The FFETF has five working groups, one of
which--the Mortgage Fraud Working Group--is focusing on foreclosure
rescue schemes as well as other types of mortgage fraud. According to
members of the Mortgage Fraud Working Group that we contacted, the
group provides a venue for member agencies to share information on
best practices and to sponsor activities to enhance understanding of
mortgage fraud.[Footnote 21] While the working group's primary focus
is on law enforcement activities, members have also expressed interest
in supporting consumer education initiatives. Other efforts designed
to protect consumers from these schemes involve federal, state,
nonprofit, and private organizations and primarily focus on consumer
education and outreach.
Current Federal Effort to Combat These Schemes Is the FFETF, Which
Incorporated Previous Federal Efforts:
As we have previously discussed, in November 2009, an executive order
established the FFETF to strengthen the efforts of DOJ in conjunction
with federal, state, and local agencies to investigate and prosecute
significant financial crimes and violations relating to the current
financial crisis and economic recovery efforts. The executive order
established DOJ as the lead federal agency for the FFETF. The range of
financial crimes and violations for which the FFETF is responsible is
broad, including among others, bank fraud, mortgage fraud, securities
and commodities fraud, and discrimination. While foreclosure rescue
schemes are not specifically listed in the executive order, DOJ told
us that such schemes are a type of mortgage fraud that falls within
the FFETF's purview. Moreover, the executive order described the
FFETF's mission and functions as (1) providing advice to the Attorney
General on the investigation and prosecution of financial crimes and
violations when the Attorney General determines such cases to be
significant; (2) making recommendations to the Attorney General for
action to enhance cooperation among federal, state, local, tribal, and
territorial authorities responsible for the investigation and
prosecution of significant financial crimes and violations; and (3)
coordinating law enforcement operations with representatives of these
same authorities. The U.S. Attorney General is chair of the FFETF, and
DOJ appointed an executive director in February 2010 to oversee its
operations.
The FFETF includes 25 federal departments, agencies, and offices, as
well as numerous inspectors general, and state and local authorities.
Moreover, the executive order encourages the FFETF to invite
representatives of state and local law enforcement agencies and
specifically the National Association of Attorneys General and the
National District Attorneys Association to participate in the task
force to coordinate law enforcement operations. In addition, the
executive order requires the FFETF to conduct outreach with
representatives of other organizations, such as financial institutions
and nonprofit organizations.
According to some of the FFETF members that we contacted, the FFETF
expands upon the administration's earlier multiagency effort to combat
financial crimes, including foreclosure rescue schemes, that was first
announced on April 6, 2009. This earlier effort was intended to
coordinate the efforts of federal and state agencies, as well as
private sector entities, to protect homeowners seeking assistance
under the Making Home Affordable Program. According to agency
officials, individual efforts established in relation to the April
2009 announcement, particularly those by FTC and FinCEN, continue
under the respective agencies. Federal agencies that participated in
this announcement--FTC, Treasury (FinCEN), HUD, and DOJ--undertook
various supporting activities that sometimes were a continuation of
their previous efforts, including the following examples:
* FTC officials indicated that the agency had coordinated two
enforcement sweeps in conjunction with other federal and state
agencies against persons perpetrating loan modification schemes, which
according to FTC resulted in over 300 independent enforcement actions.
[Footnote 22] FTC had undertaken law enforcement actions against
companies involved in the sale of foreclosure rescue services and
published its first consumer warnings about these practices on its Web
site in February 2008. Additionally, FTC officials noted that they had
developed a public service video for distribution to community groups
and legal aid offices, among others.
* At the time of the April 6, 2009, announcement, FinCEN also issued
guidelines to financial institutions identifying and submitting SARs
for suspected foreclosure rescue scams that it had been developing
prior to the April announcement.[Footnote 23] FinCEN officials stated
that the agency has devoted significant resources to supporting state
law enforcement efforts to pursue these schemes--for example, by
developing a database with investigative information that could be
useful to agencies targeting the same suspects. In addition, FinCEN
provides direct research and analytical support to state and local law
enforcement agencies on individual cases and provides training to
states on how to utilize FinCEN's law enforcement support functions--
for example, by showing them how to query its databases.[Footnote 24]
* In support of the April 6, 2009 announcement, DOJ established four
working groups to discuss ways of addressing mortgage fraud, including
foreclosure rescue schemes, through information sharing and
coordination.[Footnote 25] The groups met several times before the
creation of the FFETF, at which point their activities were largely
incorporated into the new larger effort.
* HUD officials stated that while not in direct response to the April
2009 announcement, the agency used its HUD-approved and HUD-funded
housing counseling network to help borrowers determine their
eligibility for the federal loan modification and refinancing programs
we have previously discussed.
Representatives with whom we spoke of participating federal and
several state agencies said that they derived value from the
additional coordination provided by the April 2009 announcement,
noting particularly that they began to collaborate more closely with
other agencies. In particular, they noted working more closely with
FTC, and some state agencies noted receiving an unprecedented amount
of assistance from FinCEN in using information from SARs for their own
investigative leads. Moreover, some federal and state officials
involved in the April 2009 effort said that the April 6, 2009,
announcement was useful in focusing the federal government's and the
public's attention on the issue of foreclosure rescue schemes.
FFETF's Efforts to Combat Foreclosure Rescue Schemes Are Part of Its
Broader Focus on Mortgage Fraud:
DOJ officials told us that while the FFETF's Mortgage Fraud Working
Group covers different types of mortgage fraud, the working group has
sponsored activities that have contributed to addressing foreclosure
rescue schemes. According to DOJ officials, the working group
coordinates efforts to combat all types of mortgage fraud, including
common "flipping" schemes and organized criminal enterprises preying
on government programs, such as FHA loan guarantee programs, as well
as foreclosure rescue schemes.[Footnote 26] Members of the working
group we interviewed indicated that these schemes were discussed at
various working group meetings. The Mortgage Fraud Working Group keeps
written agendas that describe the presenters and the subjects covered
at meetings, as well as presentation materials and attendance sheets.
While these materials show that foreclosure rescue schemes are
discussed at meetings, the extent of that discussion cannot be
determined because the working group does not keep meeting minutes.
Working group members told us that the meetings provided them with a
venue to discuss broader issues (e.g., best practices on combating
mortgage fraud and emerging schemes), as well as operational issues,
but that they generally do not discuss individual cases. The working
group as a whole has met three times--in December 2009, February 2010,
and June 2010--but according to DOJ officials, members also engage in
numerous ad hoc meetings, in person or by teleconference.
According to DOJ officials, these working group discussions have
resulted in activities that have provided them with additional
information about mortgage fraud and promoted best practices in
combating this fraud, including foreclosure rescue schemes. According
to information provided by the FFETF, the working group hosted
mortgage fraud summits during the first half of 2010 in four cities--
Columbus, Detroit, Miami, and Phoenix--that are in regions of the
country that were experiencing high rates of foreclosure. During these
summits, community group members briefed working group members on the
types of mortgage fraud that they are experiencing, and federal,
state, and local law enforcement officials held separate closed
discussions. In early March 2010, the FFETF conducted a 3-day Mortgage
Fraud Task Force course at the National Advocacy Center for both
federal and state law enforcement officials, which included, among
other things, discussions of best practices and enforcement tools as
they relate to different types of mortgage fraud, including
foreclosure rescue schemes. In addition, in late May 2010, the FFETF
conducted another 3-day Mortgage Fraud Seminar at the National
Advocacy Center, including a session specifically focused on
foreclosure rescue schemes. Members of the Mortgage Fraud Working
Group that we contacted and others aware of its activities expressed a
positive view of its initial efforts to date. For example, several
officials involved in the effort indicated that the working group is
creating partnerships and opening lines of communication, particularly
between state and federal agencies.
DOJ officials also reported that the Mortgage Fraud Working Group was
responsible for coordinating Operation Stolen Dreams, a series of
federal and state law enforcement actions undertaken by agencies
represented on the FFETF between March 1, 2010, and June 17, 2010. DOJ
reported that this operation involved more than 1,500 criminal
defendants--119 of whom were allegedly involved in foreclosure rescue
schemes--and 191 civil enforcement actions, of which more than 100
pertained to foreclosure rescue schemes. According to DOJ officials,
the announcement of this sweep to the public reinforced the consumer
awareness and deterrence objectives of the working group.
In addition, FFETF's leadership, as well as two of its members,
indicated that they are looking for other opportunities to enhance
consumer education. For example, the FFETF launched a Web site
(www.StopFraud.gov) in April 2010 to provide information about FFETF
activities and information for consumers, including descriptions about
foreclosure rescue schemes and how to report them. The Web site
provides links to consumer advisories, including those posted by FTC,
the Board of Governors of the Federal Reserve System, and
NeighborWorks America. In addition, according to FFETF agendas,
working group members have held specific discussions on how to warn
the public about foreclosure rescue schemes.
Other Major Federal, Private, and Nonprofit Coordinated Efforts Focus
on Consumer Education and Information Gathering:
In addition to the FFETF, there are other coordinated efforts
involving federal, state, private, and nonprofit entities aimed at
addressing the problem of foreclosure rescue schemes through
activities intended to enhance consumer outreach and education. In
June 2009, the Loan Modification Scam Prevention Network (the Network)
was formed primarily by four organizations--Fannie Mae, Freddie Mac,
the Lawyers' Committee, and NeighborWorks America--to coordinate
efforts educating homeowners about these schemes and to gather
information about their prevalence.[Footnote 27] According to a
representative of Fannie Mae, coordination is important to avoid
confusing consumers with mixed messages from different sources. The
FFETF Mortgage Fraud Working Group invited a representative of the
Network to describe its efforts at the Mortgage Fraud Summit in
Detroit, Michigan, on April 23, 2010.
As explained by Fannie Mae and the Network's members, member
organizations support the following activities:
* Consumer outreach and education: This initiative is primarily led by
NeighborWorks America, which was appropriated $6 million by Congress
in March 2009 to develop a national campaign warning the public about
loan modification scams.[Footnote 28] NeighborWorks America
subsequently launched the campaign--Loan Modification Scam Alert--in
October 2009 and is targeting African American, Asian, Hispanic, and
senior homeowners in 25 areas with high risk of foreclosure.
NeighborWorks America has reported that it has used various media in
these areas--print, radio public service announcements, and its
campaign Web site (www.LoanScamAlert.org)--to reach people and
encourage them to dial the HOPE Hotline for loan modification
assistance, find a local foreclosure counselor, or visit the Web site
to learn about or report scams.
* Obtaining and compiling information about schemes from consumers: As
we have previously described, the Homeownership Preservation
Foundation gathers information from homeowners who call the HOPE
Hotline believing they have been subject to a scam and obtains the
homeowner's consent to provide this information to the Lawyers'
Committee. The Lawyers' Committee compiles this information, as well
as complaints it has received through its Web-based complaint form,
into a single database. To make the Web-based complaint form
accessible to homeowners, the form is hyperlinked to the Loan
Modification Scam Alert campaign Web site as well as to the Web sites
for Making Home Affordable and the FFETF, which are sites that also
list the telephone number of the HOPE Hotline.
* Providing Information to FTC: To support federal and state law
enforcement efforts, the Lawyers' Committee began submitting these
data from its database to the FTC's Consumer Sentinel complaint
database on May 14, 2010. In April 2010, the Lawyers' Committee
reported that the primary source of complaints on foreclosure rescue
schemes is the HOPE Hotline.
In addition, federal banking regulatory agencies, such as the Office
of the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation, have issued consumer advisories containing tips
homeowners can use in identifying and reporting foreclosure rescue and
loan modification schemes and have undertaken other activities to warn
consumers about these schemes. For example, officials from OCC
indicated that the agency also delivered presentations at foreclosure
events that provided homeowners with information about loan
modification options, including HAMP, and alerted attendees to ways in
which they can identify and avoid foreclosure rescue and modification
scams.
Several Factors Could Affect the Federal Government's Success and the
Working Group's Efforts May Be Limited by Weaknesses in Its Planning:
Our analysis suggests that several factors could be important to
federal efforts in combating foreclosure rescue schemes, especially
educating consumers about deceptive practices and effectively
coordinating law enforcement efforts to combat these schemes. The
Mortgage Fraud Working Group has developed an action plan that
addresses some of these factors in its planned activities. However,
the plan does not address certain key practices that can help enhance
and sustain collaboration among federal agencies, such as a clear long-
term strategy and results-oriented performance measures. Additionally,
the action plan does not identify priorities or strategies for
specific types of mortgage fraud schemes. As a result, the working
group may not be optimizing its efforts to increase enforcement
activities in the area of mortgage fraud, particularly regarding
foreclosure rescue and loan modification schemes.
Several Key Factors May Affect the Federal Government's Likelihood of
Success in Combating Foreclosure Rescue and Loan Modification Schemes:
Our analysis of interviews with representatives of federal and state
agencies and nonprofit organizations suggests that several factors may
affect the federal government's likelihood of success in combating
foreclosure rescue schemes. A broad array of federal and state
officials, including law enforcement officials, as well as
representatives of nonprofit organizations, indicated that it is
essential to make consumers aware of these schemes, to provide them
information on legitimate alternatives to using such services, and to
encourage them to report suspicious incidents to authorities. As noted
by several law enforcement agencies, it is easier to stop a crime from
taking place than it is to catch the criminal later and obtain
restitution. Representatives of several nonprofit organizations told
us that implementation of a widespread media campaign--using
newspapers, radio, and television--would be the most effective way of
communicating this information. A representative of NeighborWorks
America also noted that most local organizations do not have the funds
to compete with the money the persons perpetrating the schemes spend
on misleading advertising. A representative of Consumers Union noted
that it was important to find ways of delivering information to hard-
to-reach communities (e.g., those where a large number of the
individuals are not native English speakers or do not have ready
access to or proficiency with computers).
Another factor we identified in our analysis as being important to the
federal government's efforts is coordinating law enforcement
activities. Representatives of both federal and state law enforcement
agencies said that the coordination of federal and state law
enforcement efforts is important for several reasons, including the
need to share investigative information, consolidate resources, and
decide on the most appropriate legal action and whether a federal or
state agency should take the action. Several law enforcement
officials, as well as two nonprofit organizations, explained that
sharing investigative information across agencies was particularly
needed because these schemes are often perpetrated by entities that
operate across state lines. Thus, these and other officials commented
on the usefulness of information--such as complaint information made
available through the FTC's Consumer Sentinel, SARs provided by
FinCEN, and information that states may have on emerging schemes--that
can be brought to the attention of the federal government. In
addition, some officials mentioned that it is important for different
agencies working on the same case to coordinate their activities to
share information and not duplicate efforts.
The importance of federal and state law enforcement coordination was
also supported by how federal and state officials described their
respective roles. The U.S. Attorneys from most of our five case-study
states told us that they usually only undertake cases in which the
dollar value of the loss is substantial--for example, at least $1
million in the case of mortgage fraud--or if the nature of the case is
particularly complex, such as cases involving attorneys, title
companies, straw buyers, and financial service providers. According to
DOJ officials, U.S. Attorney offices, given their limited resources,
competing demands and differing crime patterns in various districts,
may employ loss thresholds, which result in the referral of cases to
local prosecutors' offices. Thus, U.S. Attorneys are less likely to
pursue advance-fee schemes, which typically involve much smaller
dollar losses (approximately $3,000 per homeowner). In contrast, most
of the State Attorneys General we interviewed referred to state laws
or regulations that in their view either discouraged the perpetration
of these schemes or made it easier for them to take enforcement
actions. However, representatives of each of these states also
identified the benefits of federal assistance in investigating and
prosecuting these schemes, particularly where they are conducted
across state lines. Several of the state representatives also noted
the usefulness of federal support for their own investigations, such
as the training provided by FinCEN to help understand and interpret
Bank Secrecy Act data.
In addition, representatives of several nonprofit organizations and
law enforcement officials noted that strengthening laws could be an
important factor in combating schemes. There is no federal statute
specifically prohibiting foreclosure rescue and loan modification
schemes; therefore, federal agencies rely on investigating and
prosecuting under general federal laws that may have been violated,
such as wire fraud and false advertising, or in assisting state
authorities with their investigations and prosecutions. Several
officials noted that a federal law prohibiting the charging of fees in
advance for loan modification services would be more effective in
deterring these schemes than laws enacted as part of a state-by-state
approach, and other officials observed that such laws would make
filing enforcement actions easier because they would remove any
ambiguities about whether a crime was committed. Several state and
federal officials also indicated that additional resources were needed
to investigate and pursue more cases.
The Mortgage Fraud Working Group has developed an action plan that
describes the composition and function of the group and that addresses
some of the factors in combating these schemes. The plan articulates
the primary purpose of the working group as being "to increase
enforcement in the area of mortgage fraud, and to do so through
greater coordination among law enforcement agencies, the development
and sharing of enforcement strategies, and training." The action plan
also describes activities undertaken by the working group between
November 2009 and June 2010 and activities contemplated for the period
between late June 2010 and the subsequent meeting of the full Task
Force Committee to be held in late November 2010. Finally, the action
plan contains a section that identifies the metrics that the working
group is using or considering for use in evaluating its progress in
the area of mortgage fraud enforcement. Among these metrics are the
proliferation of local mortgage fraud task forces, number of people
trained in mortgage fraud, and number of enforcement sweeps conducted.
The activities identified in the working group's action plan address
two of the factors that we identified as being important to the
efforts to combat these schemes--consumer education and law
enforcement coordination. For example, the action plan lays out
various proposals on ways to warn the public about foreclosure rescue
schemes but does not specify agreements on the roles and
responsibilities of member agencies, as well as those that might be
developed with nonfederal agencies already active in this area, in
carrying out consumer education efforts.[Footnote 29] The bulk of the
action plan items focus on activities to improve coordination between
federal, state, and local law enforcement agencies regarding combating
mortgage fraud. Specifically, the action plan identifies the following
key coordination efforts: mortgage fraud summits to be held in
additional cities across the country, and additional mortgage fraud
training sessions to be held at the National Advocacy Center for both
federal and state law enforcement officials. As we have discussed
previously, during the summits, community groups are invited to
discuss the types of mortgage fraud that they are experiencing, and
separate sessions are held with federal, state, and local law
enforcement officials to discuss coordination issues related to
mortgage fraud enforcement efforts. The FTC has proposed a rule that,
among other things, restricts practices concerning companies
collecting an advance fee for loan modification services. The comment
period for the proposed rule has closed, and FTC officials said that
they are in the process of reviewing public comments and finalizing
the proposed rulemaking.
The Working Group's Planning Efforts Do Not Include Key Collaborative
Practices, Which Could Limit Its Ability to Optimize Its Efforts to
Combat Mortgage Schemes:
Although the Mortgage Fraud Working Group's action plan addresses some
of the factors that could impact the federal government's success in
combating mortgage schemes, the plan does not include some key
practices that our prior work has found can help enhance and sustain
collaboration among federal agencies.[Footnote 30] Of the eight
practices that we have found to enhance multiagency coordination
efforts, four in particular appear relevant to the Mortgage Fraud
Working Group's current efforts:
* defining and articulating a common outcome;
* establishing mutually reinforcing or joint strategies designed to
help align activities, core processes, and resources to achieve a
common outcome;
* agreeing on roles and responsibilities, including leadership; and:
* developing mechanisms to monitor, evaluate, and report on the
results of the collaborative effort.[Footnote 31]
The Mortgage Fraud Working Group's action plan does identify common
outcomes or goals for the working group. However, although the goals
outlined in the action plan--increasing coordination among law
enforcement agencies, developing and sharing of enforcement
strategies, and training--appear to be long term in nature, they are
supported by activities that do not go beyond 6-month intervals. The
working group's action plan also does not discuss the need for the
collaborating agencies to establish strategies that work in concert
with those of their partners or that are joint in nature. Such
strategies help in aligning the partner agencies' activities, core
processes, and resources to accomplish the common outcome.
Additionally, the action plan does not address agreements on the roles
and responsibilities of the working group members regarding activities
to be undertaken to achieve the group's goals. Similarly, the
performance measurements in the action plan--such as the frequency of,
attendance at, and types of mortgage fraud discussed at the summits--
are useful for evaluating the activities themselves but not the extent
to which the activities have strengthened progress toward the broader
goal of increasing coordination activities. Without performance
measures that can be used to measure progress toward the working
group's long-term goal, the working group may not be able to evaluate
its effectiveness in strengthening law enforcement efforts, including
efforts to combat foreclosure rescue schemes, or to determine whether
its current activities are the best ones to strengthen law enforcement
efforts and address the needs of its federal and state members.
In addition, the action plan does not tailor strategies to the various
types of mortgage fraud that the working group addresses.
Consequently, the plan does not include strategies or performance
measures that relate to foreclosure rescue and loan modification
schemes. Planning that reflects the specific nature of these schemes
may be important. For example, as we have previously discussed,
schemes often operate across state lines. State Attorneys General
indicated to us that they need federal assistance in pursuing persons
that operate these schemes across the borders of their states. U.S.
Attorneys also told us that they generally do not pursue these types
of schemes due to the need to focus on schemes involving larger dollar
amounts. The lack of strategies to effectively deal with the unique
nature of these schemes may negatively impact the efforts of the
working group to increase coordination among relevant law enforcement
agencies to combat schemes that cross state lines. In addition, the
group may be limited in its ability to develop performance measures
related to these particular schemes.
Conclusions:
Because data on the prevalence of foreclosure rescue schemes are
limited, it is difficult to establish a reliable estimate of just how
often these schemes are occurring. Nevertheless, available data and
views from a wide variety of sources suggest that foreclosure rescue
schemes are indeed an important consumer problem and that new types of
schemes are emerging. Furthermore, state law enforcement officials
have expressed concern that schemes can be difficult to combat because
they are often perpetrated across state lines and those engaging in
them can relocate the schemes to other parts of the country very
quickly.
While the April 2009 announcement signaled the federal government's
interest in strengthening efforts to specifically combat foreclosure
rescue schemes, it is not clear to what extent that the announcement
resulted in significant interagency collaboration among the key
federal law enforcement agencies. However, several individual
agencies, notably FinCEN and FTC, appear to have undertaken various
major initiatives subsequent to the April 2009 announcement that
involve extensive collaboration with state agencies, which they
believe added momentum to the federal government's efforts to support
law enforcement actions against these schemes. The subsequent creation
of the FFETF appears to build on the April 2009 announcement by
expanding the focus of the federal government's coordinated efforts to
financial fraud in general, including mortgage fraud. However, the
focus on foreclosure rescue and loan modification schemes is not as
clear as in the April 2009 announcement.
The Mortgage Fraud Working Group has developed an action plan that
identifies the working group's primary purpose as increasing
enforcement in the area of mortgage fraud. The action plan also, in
part, addresses two of the key factors that we identified as important
to federal efforts in combating foreclosure rescue and loan
modification schemes--educating consumers about deceptive practices
and effectively coordinating law enforcement efforts to combat these
schemes. Consumer education is a key factor in combating these
schemes, since law enforcement agency officials indicated that it is
easier to stop a crime from taking place than it is to catch the
criminal later and obtain restitution. Greater coordination in the
area of mortgage fraud is also particularly important given the wide
array of federal, state, and local agencies involved, as well as
nonprofit partners. However, the action plan does not address key
practices that can help enhance and sustain collaboration among
federal agencies, such as the need for a clear, long-term strategy;
clear delineation of roles and responsibilities; and results-oriented
performance measures. Without an action plan that identifies roles and
responsibilities and key metrics, the working group may not be able to
optimize the efforts of its members to combat mortgage fraud through
enhanced coordination of federal, state, and local agencies. In
addition, the working group's action plan does not specify strategies
for foreclosure rescue and loan modification schemes, and the
distinctive nature of these schemes suggests that they warrant a
specific approach, particularly in identifying ways for supporting
state-level law enforcement efforts. By developing a strategy that
clearly delineates short-and long-term strategic goals, differentiates
between types of mortgage fraud, and includes accompanying performance
measures, the Mortgage Fraud Working Group could enhance its ability
to contribute to law enforcement efforts to combat foreclosure rescue
schemes and other types of mortgage fraud.
Recommendations for Executive Action:
To develop a comprehensive strategy for the FFETF's Mortgage Fraud
Working Group's efforts to combat mortgage fraud, we recommend that
the U.S. Attorney General, as the head of the FFETF, do the following:
(1) develop clear, long-term strategies and performance measures that
the working group can use to evaluate its progress toward achieving
its long-term goal of increasing enforcement in the area of mortgage
fraud and (2) to the extent that the working group considers
foreclosure rescue schemes to be a priority, develop strategies
specific to these schemes, including those that enhance coordination
of law enforcement agencies and that provide consumer education.
Agency Comments and Our Evaluation:
We provided a draft of this report for review and comment to the heads
of the Departments of Housing, Justice, and the Treasury and the
Federal Trade Commission. We received written comments from the
Department of Justice. These comments are summarized below and
reprinted in appendix II. DOJ, FTC, HUD, and on behalf of Treasury,
the Financial Crimes Enforcement Network and the Office of the
Comptroller of the Currency, provided technical comments, which we
incorporated in this report, where appropriate.
In its written comments, DOJ concurred with our recommendations that
the FFETF develop clear, long-term strategies and performance measures
to evaluate its progress in increasing enforcement in the area of
mortgage fraud and consider developing strategies specific to
foreclosure rescue schemes. DOJ stated that it agreed that
incorporating additional long-term strategies and metrics, as
feasible, into its action plan, as we recommended, could enhance and
sustain the progress to date of the Mortgage Fraud Working Group's
efforts to improve federal, state, and local law enforcement agencies'
abilities to coordinate and adapt to the everchanging schemes. DOJ
also stated that it would provide a detailed plan of action in its
response to Congress.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the date of this letter. At that time, we will send copies of
this report to other interested congressional committees, the Attorney
General of the United States, the Secretary of the Department of
Housing and Urban Development, the Secretary of the Treasury, the
Chairman of the Federal Trade Commission, and other interested
parties. The report also will be available at no charge on GAO's Web
site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs are on the
last page of this report. GAO staff who made major contributions to
this report are listed in appendix III.
Signed by:
Mathew J. Scirč:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To determine what is known about the nature and prevalence of mortgage
foreclosure rescue and loan modification schemes, we collected
available data from and interviewed representatives of the four
federal agencies--the Federal Trade Commission (FTC) and the
Departments of Justice (DOJ), the Treasury (Treasury), and Housing and
Urban Development (HUD)--and their relevant bureaus or divisions that
were identified as members of a multiagency initiative to combat these
schemes as announced by the administration on April 6, 2009. Within
DOJ, we interviewed officials from the Executive Office for U.S.
Attorneys, the Federal Bureau of Investigation (FBI), Criminal
Division, Civil Rights Division, and Office of Justice Programs. In
addition, we analyzed information related to the enforcement actions
that FTC brought in calendar years 2008 and 2009 against individuals
engaged in foreclosure rescue and loan modification schemes.
Furthermore, we contacted national nonprofit organizations that
collect consumer information or have conducted studies related to
foreclosure rescue and loan modification schemes. These organizations
include NeighborWorks America®, the Lawyers' Committee for Civil
Rights Under Law (Lawyers' Committee), the Homeownership Preservation
Foundation, the National Community Reinvestment Coalition, and the
Council of Better Business Bureaus. We also contacted other nonprofit
organizations knowledgeable about these schemes, including the
Consumers Union and the Hope Now Alliance. We interviewed
representatives of these national nonprofit organizations, which
allowed us to obtain additional information on the nature of the
schemes, as well as the likely persons engaged in and potential
victims of these schemes. Several of these organizations also provided
us with information about the number of potential victims, although we
determined the information could not be used for the purpose of
estimating the prevalence of these schemes. This information included
the number of people who reported that they may have been victimized
to the Homeownership Preservation Foundation's Homeowner's HOPE™
Hotline (1-888-995-HOPE), and the number of people who had complaints
about possible scams reported by the Lawyer's Committee.[Footnote 32]
Lastly, we obtained information on the characteristics of potential
schemes from a study published by the National Community Reinvestment
Coalition.[Footnote 33]
To obtain additional information on the nature of these schemes,
including descriptions of persons likely to engage in them and
potential victims, we collected information specific to five states--
Arizona, California, Florida, Illinois, and New York. We selected
these five states because they featured some of the highest numbers of
potential foreclosures, calculated using Mortgage Bankers
Association's fourth quarter 2009 information on the total loans past
due by state, and we also considered geographic dispersion.[Footnote
34] In each state, we conducted structured interviews with
representatives of the State Attorney General's office, a U.S.
Attorney's office, and one other agency or nonprofit organization in
each state who was knowledgeable about these schemes.[Footnote 35] In
the absence of information that could reliably be used to assess the
prevalence of these schemes, we asked state officials to provide us
with information on the indicators that they typically use to assess
the likely prevalence of a consumer problem in their states, such as
the number of consumer complaints, enforcement actions, or
investigations. We also asked state officials to provide us with
information on the state laws and regulations that they use to take
actions against persons who engage in these schemes.
To obtain information on the activities of the Financial Fraud
Enforcement Task Force (FFETF), we interviewed a Deputy Attorney
General within DOJ and the Executive Director of the FFETF. To obtain
information about the FFETF's specific activities related to combating
foreclosure rescue and loan modification schemes, we interviewed the
federal and state agency cochairs of the FFETF's Mortgage Fraud
Working Group, which includes representatives of DOJ's Civil Justice
Division, the U.S. Attorneys' Offices, FBI, HUD's Office of Inspector
General, and the National Association of Attorneys General (state
representative). We also interviewed select members of the Mortgage
Fraud Working Group--FTC, Treasury's Financial Crimes Enforcement
Network (FinCEN), and the U.S. Postal Inspection Service--we selected
on the basis of their roles in combating foreclosure rescue and loan
modification schemes and recommendations from the working group's
cochairs. In addition, to understand how the FFETF and the working
group functioned, we obtained and reviewed (1) the executive order
establishing the FFETF's mission and key functions and meeting
agendas; (2) perspectives from the working group's cochairs and
previously listed members; and (3) available documentation on the
working group's activities related to these schemes as identified by
members (e.g., training, mortgage fraud summits, and meetings). We
also attended the public session of the FFETF's Mortgage Fraud Summit
in Detroit, Michigan, on April 23, 2010, to determine the extent to
which these summits addressed the problem of foreclosure rescue and
loan modification schemes. To obtain information about other federal
efforts to combat these schemes, we interviewed the federal agencies
and state representatives that announced efforts to combat these
schemes on April 6, 2009--including FTC, DOJ, Treasury's FinCEN, and
HUD--and collected documentation on their activities.
We also interviewed state officials involved in the April 2009
announcement, including State Attorney General representatives who
participated in the press announcement and the DOJ working groups that
were formed following this announced effort. To identify other major
efforts related to combating these schemes, we interviewed federal,
state, private, and nonprofit officials, such as those involved in the
Loan Modification Scam Prevention Network (the Network), primarily two
government sponsored enterprises--Fannie Mae and Freddie Mac--and two
national nonprofit organizations--the Lawyers' Committee and
NeighborWorks America, about national efforts to combat these schemes.
We collected and reviewed descriptive information on what the Network
described as its key efforts--primarily the media consumer education
campaign run by NeighborWorks America and an effort by the Lawyers'
Committee to collect consumer complaint information from victims of
foreclosure rescue and loan modification schemes. We also reviewed
additional individual consumer education activities that the federal,
state, and nonprofit agencies we have previously mentioned described
using publicly available information.
To identify what factors may affect federal efforts' likelihood of
success in combating foreclosure rescue and loan modification schemes,
we analyzed information provided by the representatives of the federal
and state agencies and national nonprofit organizations that we
interviewed throughout the course of our review. This information
largely pertained to what these representatives identified as the
challenges to combating these schemes but also included information on
factors that they identified as important in combating these schemes,
such as the nature of law enforcement coordination. In addition, to
assess how factors related to strategic planning could affect the
federal effort's likelihood of success, we considered our October 2005
report on practices that can help enhance and sustain collaboration
among federal agencies when assessing how the FFETF's current planning
practices could affect collaboration among its many federal agencies
and other partners, such as state and nonprofit agencies.[Footnote 36]
We conducted this performance audit from September 2009 to July 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Comments from the Department of Justice:
U.S. Department of Justice:
Office of the Deputy Attorney General:
Washington, D.C. 20530:
July 8, 2010:
Mr. Mathew Scirč:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Scirč:
The Department of Justice has reviewed the Government Accountability
Office's ("GAO") draft report "Federal Effort to Combat Foreclosure
Rescue Schemes Are Underway, but Improved Planning Elements Could
Enhance Progress," GAO-10-787. The Department concurs with the GAO's
recommendations and will provide a detailed plan of action in our
response to Congress.
As discussed in the GAO report, the Financial Fraud Enforcement Task
Force ("Task Force") was created by Executive Order in November 2009
to strengthen the efforts of federal, state and local agencies and
regulators to investigate and prosecute financial fraud. The Executive
Order directs the Task Force to address a broad array of fraudulent
activities, including: "bank, mortgage, and lending fraud; securities
and commodities fraud; retirement plan fraud; mail and wire fraud; tax
crimes; money laundering; False Claims Act violations; unfair
competition; discrimination; and other financial crimes and
violations." To address this mandate, the Task Force has established
numerous working groups and committees tailored to specific types of
fraud. Mortgage fraud is one of the types of fraud covered by the Task
Force, and the Mortgage Fraud Working Group is primarily responsible
for focusing on this type of fraud. Foreclosure rescue scams are not
specifically identified as a separate priority in the Executive Order,
but it is a common type of mortgage fraud and therefore a focus of the
Mortgage Fraud Working Group.
As described in the report, since the creation of the Task Force
several months ago, the Mortgage Fraud Working Group has been very
active in combating mortgage fraud. This effort includes convening
regional summits to focus enforcement efforts in areas most impacted
by mortgage fraud, conducting national training for both federal and
state law enforcement, launching the Task Force's consumer awareness
and fraud reporting website StopFraud.gov, and coordinating the
recently announced Operation Stolen Dreams — the broadest mortgage
fraud sweep in history.
As the report correctly indicates, there are difficulties in
prosecuting mortgage fraud schemes: perpetrators and methods of such
schemes vary, often preying upon changes in the housing market; data
on foreclosure rescue schemes are limited; and perpetrators can start
up and shut down quickly. This rapidly changing environment requires a
strategy that is flexible and responsive to the evolving problem. To
help meet this challenge, the Mortgage Fraud Working Group, as noted
in the report, has an action plan tailored to the mandate set forth in
the Executive Order. The action plan has focused on cooperation,
coordinated enforcement, information sharing, training, and outreach,
and identifying common outcomes and performance metrics. This approach
has helped to improve federal, state, and local law enforcement
agencies' ability to coordinate and adapt to the ever-changing schemes.
We agree with the GAO report that the Mortgage Fraud Working Group's
action plan addresses several of the key factors that ensure
effectiveness in educating consumers and coordinating state and
federal efforts. We also agree that incorporating other long-term
strategies and metrics, where feasible, could enhance and sustain the
progress to date.
Accordingly, the Department concurs with the GAO's recommendations and
will provide a detailed plan of action in our response to Congress.
The Department appreciates the work of the GAO and this opportunity to
comment on the GAO's draft report. Should you have any questions
regarding this topic, please do not hesitate to contact Richard Theis,
Department of Justice, Audit Liaison on 202-514-0469.
Sincerely,
Signed by:
Robb Adkins:
Executive Director:
Financial Fraud Enforcement Task Force:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mathew J. Scirč, (202) 512-8678 or sciremj@gao.gov:
Staff Acknowledgments:
In addition to the contact above, Harry Medina (Assistant Director),
Meghana Acharya, Sonja J. Bensen, Kristy Brown, Elizabeth H. Curda,
Melissa F. Kornblau, Otis S. Martin, Marc Molino, Linda Rego, Jennifer
W. Schwartz, Andrew Stavisky, James D. Vitarello, and Heneng Yu made
key contributions to this report.
[End of section]
Footnotes:
[1] GAO, Results-Oriented Government: Practices That Can Help Enhance
and Sustain Collaboration among Federal Agencies, [hyperlink,
http://www.gao.gov/products/GAO-06-15] (Washington, D.C.: Oct. 21,
2005).
[2] GAO, Troubled Asset Relief Program: Home Affordable Modification
Program Continues to Face Implementation Challenges, [hyperlink,
http://www.gao.gov/products/GAO-10-556T] (Washington, D.C.: Mar. 25,
2010).
[3] In March 2009, Treasury issued the first HAMP guidelines for
modifying first-lien mortgages in an effort to help homeowners avoid
foreclosure. HAMP is part of the Troubled Asset Relief Program.
[4] The average fee amount represents information provided by
consumers in complaints collected between October 21, 2009, and May 7,
2010, by the Lawyers' Committee--a nonprofit organization that works
to enforce civil rights in a variety of issue areas, including fair
housing and fair lending, through its pro bono legal network. This
information is based, in part, on data collected by the Homeownership
Preservation Foundation, which administers the Homeowner's HOPE
hotline.
[5] National Community Reinvestment Coalition, Foreclosure Rescue
Scams: A Nightmare Complicating the American Dream (Washington, D.C.:
March 2010). The National Community Reinvestment Coalition is a
coalition of community groups, including housing counseling agencies,
that works to promote access to affordable housing, among other things.
[6] National Consumer Law Center, Desperate Homeowners: Loan Mod
Scammers Step in When Loan Servicers Refuse to Provide Relief (July
2009); and Foreclosure Rescue Scams.
[7] Financial Crimes Enforcement Network, Mortgage Loan Fraud: Loan
Modification and Foreclosure Rescue Scams (May 2010).
[8] As instructed by section 626 of the Omnibus Appropriations Act,
2009, Pub. L. No. 111-8, 123 Stat. 524 (2009), on June 1, 2009, FTC
proceeded with an advanced notice of proposed rulemaking seeking
public comment on the practices of entities other than mortgage
servicers who offer assistance to consumers in dealing with lenders or
servicers of their loans to modify them or avoid foreclosure. 74 Fed.
Reg. 26130 (June 1, 2009). On March 9, 2010, FTC published in the
Federal Register a proposed rule that, among other things, (1)
instructs that companies promising to get mortgage modifications could
not be paid until they had provided the consumer documentation of
mortgage modification in the form of a written offer from a mortgage
lender or servicer and (2) prohibits persons from providing assistance
to entities that they know or consciously avoid knowing are engaged in
a violation of the proposed rules. The rule also provides a limited
exemption for attorneys in connection with certain proceedings. 75
Fed. Reg. 10707 (Mar. 9, 2010).
[9] Cal. Civ. Code § 2945.4(a); Fla. Stat. Ann. § 501.1377(3)(b); 765
Ill. Comp. Stat. Ann. 940/50(a)(1); N.Y. Real Prop. Law § 265-b(2)(b).
Arizona, the one state that we contacted without a law specifically
addressing loan modification schemes, passed legislation requiring
that loan modification officers be licensed and undergo criminal
background checks beginning in July 2010. Ariz. Rev. Stat. Ann. §§ 6-
991(12)(a)(iii), 6-991.03.
[10] We also contacted the HUD Office of the Inspector General and the
Office of the Special Inspector General for the Troubled Asset Relief
Program (SIGTARP) and learned that the primary focus of these offices
is the tracking of loan modification fraud perpetrated against the
federal government, such as that associated with HAMP, although
SIGTARP has supported cases related to schemes specifically
perpetrated against consumers.
[11] FTC's Consumer Sentinel Network Data Book for January-December
2009 (February 2010) indicated that FTC received 7,927 consumer
complaints that consumers categorized as modification/foreclosure
rescue complaints.
[12] FBI explained that this information provided to us in May 2010 is
its most current as of that month, but since the nature of its
intelligence-gathering process is ongoing, pinpointing the date of
collection from each source would be difficult.
[13] FBI has recently developed 18 codes to track mortgage fraud
investigations, including separate codes for foreclosure rescue and
loan modification fraud. These codes will be available for
implementation by FBI's field offices no later than fiscal year 2011.
[14] 31 U.S.C. § 5318(g). FinCEN's SAR regulations may be found at 31
C.F.R. §§ 103.15-103. 21. SARs, which are filed by financial
institutions, provide information such as the suspect's identifying
information and relationship to the financial institution, if any; the
dates, types, and losses associated with the suspicious activity; and
a narrative explanation of the suspected violation of law or activity.
FinCEN makes these reports and other analyses available to other
federal, state, and local law enforcement agencies to support their
investigations into financial crimes.
[15] For example, a February 18, 2010, news release indicated that an
increasing number of filers submitted SARs noting suspicious activity
in connection with actual or purported foreclosure rescue specialists,
and that credit card processors noted multiple transaction charge-
backs in accounts held by clients later determined to be loan
modification or foreclosure rescue specialists, after homeowners
complained that the specialist failed to deliver services.
[16] In these cases, the financial institution filed the SAR upon
receipt of additional information, which may include law enforcement
or media interest in a particular type of activity or person, or a
default or foreclosure action that precipitates a review of the
account or account holder activity. While some of these activities are
out of date, they have helped analysts to determine a pattern of
fraud, thereby enabling law enforcement agencies and regulators to
focus efforts on individuals and groups that engage in repeat,
organized activities.
[17] NeighborWorks America® is a national nonprofit corporation
created by Congress to provide financial support, technical
assistance, and training for community-based revitalization efforts.
42 U.S.C. §§ 8101-8107. NeighborWorks America has a network comprising
more than 230 community-based organizations in 50 states.
[18] A foundation representative reported that this team utilizes a
specific protocol and client management system to capture the
specifics of the situation, including information about the alleged
foreclosure rescue scam organization, client demographics, and a
summary of the situation.
[19] For additional information, see Foreclosure Rescue Scams.
[20] Exec. Order No. 13519, 74 Fed. Reg. 60123 (Nov. 17, 2009).
[21] The Mortgage Fraud Working Group comprises members from 21
federal and state agencies or divisions, 5 of which serve as cochairs.
[22] On July 15, 2009, FTC announced Operation Loan Lies, which
involved 189 actions by 25 federal and state agencies, 4 of which were
FTC actions, according to FTC officials. On November 24, 2009, FTC
announced additional enforcement actions under Operation Stolen Hope,
which consisted of 118 actions by 26 federal and state agencies.
According to FTC, the agency filed 6 new complaints under Operation
Stolen Hope, none of them jointly with other state agencies.
[23] On April 6, 2009, FinCEN issued guidelines to financial
institutions instructing them to include the phrase "foreclosure
rescue scam" in the narrative of any SARs they file related to these
schemes. In May 2010, FinCEN reported that financial institutions had
filed a higher number of relevant SARs after the issuance of these
guidelines.
[24] According to FinCEN, the agency has provided state and local
authorities with state-specific information on SAR filings and other
data to help them develop leads on potential targets of investigation
for foreclosure rescue and loan modification schemes. According to
FinCEN officials, the agency has conducted training and outreach on
the use of its research and analytical support tools in 10 State
Attorney General offices since December 2009 and worked with law
enforcement officials in these and two other states.
[25] The four working groups were in the areas of criminal
enforcement, civil enforcement, civil rights enforcement, and
information sharing. According to DOJ officials, each working group
was chaired by a DOJ official at the level of Assistant Attorney
General, as well as a State Attorney General.
[26] A property flipping scheme, broadly described, is when a person
purchases a home, has it fraudulently appraised at a higher value, and
sells the house to a straw buyer who obtains a loan amount based on
the inflated price. The person engaged in this fraudulent activity
pockets the loan amount, leaving the bank holding a mortgage that is
more than the home is worth. In the case of FHA-related fraud, a
person misrepresents their income and circumstances to qualify for an
FHA-insured loan, which can offer more affordable terms than a
conventional loan.
[27] In addition to the founding members, the Network includes
representatives of government agencies, such as FTC, HUD, DOJ,
Treasury, FBI, and State Attorneys' General offices, as well as
nonprofit organizations throughout the country. The Network's efforts
are supported by a $6 million federal appropriation in the Omnibus
Appropriations Act, 2009, to the Neighborhood Reinvestment Corporation
(NeighborWorks America) for a public education campaign, and a
$160,000 grant from the Federal Deposit Insurance Corporation to cover
expenses from the media campaign's events in at least four locations.
Pub. L. No. 111-8, 123 Stat. 524 (2009). Additionally, Fannie Mae
provided $500,000 and Freddie Mac provided $150,000 to the Lawyers'
Committee for data collection and to support government enforcement
efforts; Fannie Mae and Freddie Mac each gave $150,000 to the National
Fair Housing Alliance--a national consortium of nonprofit
organizations that work on fair housing and civil rights issues--for
investigations of loan modification schemes.
[28] Id. In addition, NeighborWorks dedicated $2 million from the $6
million it received under the Omnibus Appropriations Act, 2009, to
provide grants to nonprofit organizations engaged in efforts to combat
loan scams in targeted communities, such as those with minority
populations or senior citizens, and to implement activities under the
Loan Modification Scam Alert campaign.
[29] See the prior section of this report for a description of
agencies, such as NeighborWorks America and the Homeownership
Preservation Foundation, already active in warning homeowners about
these schemes.
[30] [hyperlink, http://www.gao.gov/products/GAO-06-15].
[31] The other four practices that we reported can enhance
coordination are identifying and addressing needs by leveraging
resources; establishing compatible policies, procedures, and other
means to operate across agency boundaries; reinforcing agency
accountability for collaborative efforts; and reinforcing individual
accountability for collaborative efforts. See [hyperlink,
http://www.gao.gov/products/GAO-06-15].
[32] A large number of complaints reported by the Lawyers' Committee
were ones they had received from the Homeownership Preservation
Foundation.
[33] National Community Reinvestment Coalition, Foreclosure Rescue
Scams: A Nightmare Complicating the American Dream (Washington, D.C.:
March 2010).
[34] The Mortgage Bankers Association's National Delinquency Survey
contains data on delinquencies and foreclosures for the fourth quarter
of 2009.
[35] The U.S. Attorneys that we interviewed represented the following
districts: the District of Arizona, the Eastern District of
California, the Southern District of Florida, the Northern District of
Illinois, and the Eastern District of New York. With the exception of
Arizona, each state has more than one U.S. Attorney district.
[36] GAO, Results-Oriented Government: Practices That Can Help Enhance
and Sustain Collaboration among Federal Agencies, [hyperlink,
http://www.gao.gov/products/GAO-06-15] (Washington, D.C.: Oct. 21,
2005).
[End of section]
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