Yesterday, the House Financial Services Committee’s Subcommittee on Housing and Community Opportunity held a hearing entitled, “Legislative Solutions for Preventing Loan Modification and Foreclosure Rescue Fraud.” The Subcommittee heard testimony from the following witnesses:
- James Freis, Jr, Director, Financial Crimes Enforcement Network (FinCEN), U.S. Department of the Treasury
- Peggy Twohig, Associate Director, Division of Financial Practices, Bureau of Consumer Protection, Federal Trade Commission (FTC)
- Martha Coakley, Attorney General, State of Massachusetts
Mr. Freis discussed FinCEN’s ongoing strategy to fight mortgage loan and foreclosure rescue fraud through its role as both a regulatory and a law enforcement agency. FinCEN has been tracking mortgage fraud since early 2002 and, through ongoing analysis of data compiled from Suspicious Activity Reports (SARS), publishes reports and holds training events to apprise financial, regulatory and law enforcement communities of current trends in mortgage fraud. FinCEN also works closely with criminal investigators and prosecutors to hold those engaged in the fraud accountable.
FinCEN recently issued an advisory to help financial institutions spot “red flags” that could indicate a loan modification scam. Additionally, FinCEN is coordinating an “advanced targeting effort” by the Treasury to identify and target possible loan modification fraud suspects for civil and criminal investigations by using SARS specifically related to loan modification/foreclosure rescue.
Ms. Twohig focused on the FTC‘s efforts to protect consumers from foreclosure rescue and loan modification scams. The FTC has broad authority, but it is limited to non-bank, for-profit financial companies. As part of its enforcement efforts, the FTC has brought eleven cases targeting mortgage foreclosure rescue and loan modification scams in a little over a year’s time, and recently sent warning letters to 71 companies for marketing potentially deceptive mortgage loan modification and fire closure assistance programs. In addition, the FTC has stepped up its consumer education initiatives, including an outreach program targeting borrowers directly through a myriad of government, non-profit organizations and mortgage industry members to warn consumers and teach them how to spot and avoid mortgage rescue scams. Finally, the FTC is also utilizing its new authority under the Omnibus Appropriations Act of 2009 to use more streamlined notice and comment procedures to promulgate rules to prohibit unfair and deceptive practices with respect to mortgage loans.
Attorney General Coakley focused on the necessity of the amendment to H.R. 1231 proposed by Representative Gwen Moore (D-WI), which would eliminate the exemption for attorneys and real estate brokers from the definition of “foreclosure consultant” and would add language to include loan modifications, short refinancing and repayment plans to the scope of services performed by a “foreclosure consultant.” Ms. Coakley’s support of H.R. 1231 is based upon her own successful experience with using similar regulations in Massachusetts.
- Lauren Saunders, Managing Attorney, National Consumer Law Center
- Robert E. Story, Chairman-elect, Mortgage Brokers Association (MBA)
- John Anderson, Vice Chair, Federal Housing Policy Committee, National Association of Realtors (NAR)
- Scott J. Drexel, Chief Trial Counsel, State Bar of California
Ms. Saunders emphasized the importance of Congressional action to address the current mortgage fraud crisis. She believes that Congress should first address the loan servicing problems that send homeowners to scammers in the first place, and should also support legitimate loan modification efforts by providing HUD with more resources for housing counseling agencies and enforcement. Congress should also expand funding for existing federal enforcement efforts and create a national minimum standard to strengthen or fill the gaps in state law protection of homeowners.
Mr. Story focused on the MBA and its efforts to make borrowers in the midst of financial trouble aware of free and legitimate home ownership counseling in order to prevent them from instead coming in contact with individuals or business that intend to defraud them. MBA members say they are victims as well, and they believe that the priority should be to educate the public and to increase funding for law enforcement of already existing laws, not to enact new laws.
Mr. Anderson’s testimony focused on NAR’s concerns, which include the balance between fighting the erosion of confidence in the housing system due to mortgage fraud and ensuring that new laws are not so broad and restrictive that they inadvertently limit the availability of credit available for prime and subprime loans. Mr. Anderson expressed support for public education on mortgage fraud, as well as the non-amended version of H.R. 1231 because it creates a fair balance between legitimate housing counselors and consultants and those predatory practices it is meant to preclude.
Mr. Drexel testified about the role played by attorneys in the current crisis involving loan modification and foreclosure rescue fraud, including the use of false or misleading advertisements and the ability of California attorneys to seek advanced fees. Mr. Drexel believes H.R. 1231 can be improved by finding an effective means to prohibit attorneys from collecting advanced fees, particularly when working with non-attorneys.