Schwarzenegger approves mortgage laws

If you've got a mortgage, there are several new laws designed to protect you in one way or another.

In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved new laws that, among other things, tighten restrictions on mortgage brokers so they can't "steer" borrowers to riskier, higher-interest loans when the borrowers could afford and qualify for more economical ones.

That law, AB 260 by Assemblyman Ted Lieu (D-Torrance) also bans negative-amortization loans in which the principal keeps rising even though monthly payments are made. The measure caps prepayment penalties to 2% of the principal balance and allows state regulators to enforce federal lending laws.

Other mortgage-related bills signed by the governor include:

-- SB 36,  by Sen. Ron Calderon (D-Montebello), sets standardized licensing requirements for all residential loan originators.

-- SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.

-- AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide more, clear information to senior consumers interested in reverse mortgages.

-- SB 237, by Calderon, creates a registration program for appraisal management companies.

-- AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers.

-- AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be translated into the language the verbal negotiations were conducted in.

-- Marc Lifsher

Tips to avoid loan modification scams

The Federal Trade Commission has teamed with local and state authorities in a nationwide crackdown on loan adjustment scams, as reported in the Business section of The Times.

But one of the biggest challenges the FTC and its allies are up against is reaching homeowners looking to stave off foreclosure before the scammers reach them and dupe them, promising mortgage modification services that they never deliver.

The FTC produced a video on how to avoid scams as part of its inter-agency crackdown, dubbed "Operation Loan Lies," which can be watched and downloaded at www.ftc.gov/YourHome, or below.



The FTC's video, "Real People, Real Stories," is also available in Spanish, which can also be seen below.



For those seeking to lower their monthly home loan payments, here are some tips on avoiding scams. The suggestions come from the FTC and the office of California Atty. Gen. Jerry Brown:

• The first thing anyone seeking to modify an existing loan should do is call his lender.

• Lenders want to hear from homeowners and will probably be more willing to work directly with them than with a foreclosure consultant. Do not ignore letters from your lender. Many lenders are willing to work with homeowners who are behind on their payments.

• Contact housing counselors approved by the U.S. Department of Housing and Urban Development, who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at (800) 569-4287 or www.hud.gov.

• It is illegal for foreclosure consultants to demand money before they give you a written contract  and before they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan.

• However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the California Department of Real Estate for review.

• Do not transfer title or sell your house to a "foreclosure rescuer." Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later.

• Fraudulent foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. Beware -- this is a common scheme so-called rescuers use to evict homeowners and steal all or most of the home's equity.

• Do not pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

• Do not sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the "rescuer" who is actually a scammer.

Homeowners who think they have been ripped off can file a complaint with the California Department of Real Estate through their website here. The department also offers tips on how to avoid getting scammed and what to do if you think you've been scammed here.

Complaints can also be made directly to the FTC by phone at (877) 382-4357, the FTC's Headquarters or Financial Services Division in Washington, D.C., at (202) 326-2222. The FTC also has regional offices; in San Francisco at 901 Market St. and in Los Angeles at 10877 Wilshire Blvd.

HUD can set up homeowners with personalized guidance from housing counseling agencies they've certified at (888) 995-4673. More information on how to find free certified counseling services is available at HUD's guidance website at www.hopenow.com or the Obama Administration's website loan modification website, www.makinghomeaffordable.gov.

-- Nathan Olivarez-Giles

Lawsuits filed against 21 people, 14 companies suspected in loan rescue scams [Updated]

The Federal Trade Commission and California Atty. Gen. Jerry Brown unveiled lawsuits today designed to shut down 14 Southern California companies and 21 people accused of running loan-modification scams that ripped off thousands of struggling homeowners looking to avoid foreclosure.

The lawsuits were announced as part of a nationwide crackdown on foreclosure rescue scams known as "Operation Loan Lies," which pairs the FTC with state and local authorities to go after fraudulent companies preying on homeowners desperate for mortgage relief.

Under the operation, 189 lawsuits, cease-and-desist orders and other legal actions have been filed in 20 states,  FTC Chairman Jon Leibowitz announced at a morning press conference held with Brown in downtown Los Angeles.

Such fraudulent schemes are rampant in California, Leibowitz said.

"Part of the reason why we're out here today is because California consumers have been among the most hard hit and also because a lot of these malefactors are based in Orange County," Leibowitz said. "It's one of the hotbeds of mortgage scam activity."

Brown and the FTC are demanding millions in civil penalties, restitution for scammed homeowners and permanent injunctions to prevent the defendants and companies from offering mortgage-relief programs.

In documents filed in U.S. District Court in Los Angeles and Orange counties, Brown and the FTC allege that the California firms charged from $500 to $5,500 in upfront fees for loan modification services, often promising to help modify mortgages to make payments more affordable.

Firms named in the suits include:

• U.S. Homeowners Assistance, based in Irvine, and its executives Hakimullah "Sean" Sarpas and Zulmai Nazarzai. U.S. Homeowners Assistance also did business as Statewide Financial Group Inc.

• U.S. Foreclosure Relief Corp. and its legal affiliate, Adrian Pomery, based in the city of Orange

• Home Relief Services, with offices in Irvine, Newport Beach and Anaheim, and its legal affiliate, the Diener Law Firm

• RMR Group Loss Mitigation and its legal affiliates Shippey & Associates and Arthur Aldridge. RMR Group has offices in Newport Beach, Orange, Huntington Beach, Corona and Fresno

• United First Inc. and its lawyer affiliate, Mitchell Roth, based in Los Angeles.

Representatives for the accused companies and individuals weren't immediately available for comment.

[Updated at 11:55 a.m., July 16: An earlier version of this post described We Beat All Rates and U.S. Homeowners Preservation Center as alternate business names of U.S. Homeowners Assistance. Those two companies aren't affiliated with U.S. Homeowners Assistance and were sued separately.]

 -- Nathan Olivarez-Giles

FBI: L.A. leads in mortgage fraud

The FBI's annual mortgage fraud review says Los Angeles leads the nation in mortgage fraud, measured by reports from the agency's field offices.

The Los Angeles field office received 9,971 "suspicious activity reports" in 2008; second-place Miami had 5,155. The report says fraud schemes include builders offering secret incentives to home buyers, such as falsely inflating a purchase price to make it appear as if a buyer has made a down payment when none was made. If the home forecloses, there is no home equity for the lender to recover.

Other schemes the report identifies are scams in which a group uses a straw buyer to intentionally default on a mortgage, then buys the property at a discount from the lender through a short sale; and foreclosure rescue schemes in which perpetrators offer to help a borrower in foreclosure and surreptitiously take over the deed to the property.

The report is a broad, but not very deep, overview of the scope of mortgage fraud. The FBI acknowledges that its findings are drawn from multiple sources, including local police, other government agencies, private consultants and trade groups, and that there are inconsistencies in the ways the groups gather and report data.

-- Peter Y. Hong

I am shocked!

Pasadena-area broker Doug Willis posted a disturbing report from the field on his blog last week. He says an agent representing someone short-selling a house told him the place could be his if Willis' client would throw in a sweetener: $15,000 cash, under the table.

As Willis points out in the item titled "Would You Mind Repeating That?"  such a payment would defraud the lender holding the note on the property  and would also constitute fraud and tax evasion by not disclosing the terms of the sale.

Willis said he left a phone message for the brokerage representing the seller, but when I spoke to him late Friday, he'd not heard back.

As real estate activity picks up this spring, perhaps we'll see more shady activity as well.

Anybody else have some recent shenanigans to share?

-- Peter Y. Hong

Attacking foreclosure-rescue scams on more fronts

The push to crack down on foreclose-rescue scams is coming from all quarters these days. Locally, latimes.com reports:

State Atty. Gen. Jerry Brown pledged Saturday to investigate and prosecute businesses that charge struggling homeowners fees to help get more favorable terms for repayment of their mortgage loans.

"We have lawyers, we have investigators, and we will go after those who break the law by falsely representing what they can do," Brown said at a congressional hearing in South Los Angeles.

Brown, a Democrat planning to run for governor next year, vowed to focus specifically on bogus television ads that lure homeowners into expensive mortgage consulting deals that are useless.

"We will document the rip-offs that are over the mass media as best we can," he said.

On the federal level, part of the plan is to educate homeowners with theater ads. From the Wall Sreet Journal:

The Federal Reserve is coming soon to a theater near you.

The subject won't be the drama inside the central bank or its role in the current financial crisis. Rather, Fed officials plan to launch advertisements in movie theaters to warn homeowners about foreclosure scams.

Intended to extend the reach of consumer warnings on the Fed's website, the ads will run in 14 cities with high-foreclosure housing markets and an outbreak of scam artists charging for guidance that is free from nonprofits working with the government.

The point of both the local and federal efforts: Don't pay for what you can get free and you won't get ripped off.

—Lauren Beale

Thoughts? Comments?

Mortgage fraud on the rise

As home prices fall and banks raise lending standards, more people are lying on their loan applications, faking their property appraisals and committing other forms of mortgage fraud, according to a report released Monday.

The Mortgage Asset Research Institute, which collects data from most of the country’s mortgage lenders, said that incidents of mortgage fraud increased by 26% from 2007 to 2008.

And the geography of mortgage fraud appears to be shifting.

California, which had the fourth-highest rate of mortgage fraud in 2007, slipped to eighth place. Rhode Island, which had not been in the Top 10 for the past 11 years, has emerged as the state with the highest rate of mortgage fraud.

Florida, which had been ranked first in 2007 and 2006, dropped to second place. In third place is Illinois, followed by Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

The report was released today at the annual meeting of the Mortgage Bankers Assn. in Las Vegas. “With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, one of the report’s authors. “Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur.”

About 61% of all the reported fraud was related to lies on mortgage applications. About 28% of the frauds were related to tax returns and financial statements. The remaining fraud types were related to appraisals, verifications of deposit, verifications of employment, closing costs and credit reports. The report draws on reports to the institute by lenders and insurance companies following investigations of frauds that were used to secure a loan.

-- William Heisel

New HUD mortgage forms -- will they help?

Past attempts to disclose mortgage information to homebuyers have resulted in thick stacks of documents dropped like bricks on the table as the sale is completed.

All too often, consumer advocates say, borrowers simply grab the pen and start signing with little regard to what's in the documents, especially in states such as California where lawyers aren't required at closing. That, the advocates say, has contributed to the fraud that seemed especially prevalent in the market for subprime and complex nontraditional mortgages.

Attempts continue to make mortgages terms clearer, the latest coming today from the U.S. Department of Housing and Urban Development, which is requiring lenders and mortgage brokers to provide a standardized three-page good faith estimate to borrowers. Key aspects of the loan, including settlement costs, are on lines replicated on the final settlement document known as HUD-1, to make any changes apparent.

The new regulations, in the works since March, take effect on Jan. 1. HUD estimated they would save consumers nearly $700 on average.

HUD Assistant Secretary Brian Montgomery said in a statement that the agency considered opinions "from every corner of the mortgage market" while developing the new rule. "None of us can lose sight of the fact that millions of Americans simply don't understand the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis," Montgomery said.

HUD Secretary Steve Preston also issued remarks saying changes in the housing markets and the epidemic of foreclosures demanded action.

Your thoughts? Can these new rules really provide home buyers with the information they need to make informed decisions or are there pitfalls, as so often seems to be the case?

-- Scott Reckard

FBI on mortgage meltdown: "We are not banking regulators"

In a letter to the Los Angeles Times, the FBI is defending its response to the wave of mortgage fraud, and rejecting the suggestion it could have done more to prevent the current mortgage crisis.  The letter is in response to a Times story this week headlined "FBI saw threat of mortgage crisis," which reported that a top FBI official had warned in 2004 of widening loan fraud.

The FBI letter follows.

Dear Editor:

Your 8/25 story on the mortgage crisis ("FBI saw threat of mortgage crisis", L.A. Times, August 25th 2008) implied that if the FBI had made more arrests for mortgage fraud, the crisis could have been averted. To even suggest that is a cry for a lesson in both civics and basic economics.

The story's premise was built around a 2004 quote from an FBI official who said he was confident the FBI could prevent fraud from becoming a massive problem. In context, Assistant Director Chris Swecker meant he believed the FBI could stay focused on mortgage fraud to prevent fraud from becoming the major driver that would cause a collapse of credit in the housing market. We believe by a good measure, the Bureau did that.

The FBI's Criminal Division has arrested 1000 suspects and targeted 180 criminal enterprises since 2004. We targeted those lenders and buyers involved in multiple frauds or cases where the profits went to drug crews, gangs or organized crime. More investigations are ongoing. But the FBI is a law enforcement and intelligence agency, we are not banking regulators.

In the end, most economists have attributed the crisis to very aggressive lending practices and too little risk management throughout the financial services industry. As far as mortgage fraud was concerned the FBI had the right intelligence and provided the right warnings to the industry but fraud alone does not appear to be the straw that broke the mortgage camel's back.

In the boom and bust of the mortgage business, to suggest that making more arrests would have averted the mortgage crisis is to confuse the root cause with the side-effects. It is not a fair or realistic assessment.

Kenneth Kaiser
Assistant Director
Criminal Investigative Division
Federal Bureau of Investigation

--Peter Viles

Photo Credit: FBI director Robert Mueller, via A.P.

Report: FBI saw mortgage crisis coming in '04

An FBI official recognized the gathering mortgage crisis as far back as 2004, and predicted confidently that the FBI could prevent the problem from growing as costly as the S&L crisis, the Los Angeles Times reports Monday.

From The Times: "Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling, if little-noticed, prediction: The booming mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators and billions in losses were possible.

More: "'It has the potential to be an epidemic,' Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. 'We think we can prevent a problem that could have as much impact as the S&L crisis,' he said.

The Times report, by  Richard B. Schmitt, calls the FBI's response to the mortgage crisis "tepid," pointing out that roughly half of the FBI's mortgage fraud investigations involve losses of less than $1 million. Schmitt also reports that in 2007, when the mortgage implosion was front-page news, the number of FBI agents assigned to investigating mortgage fraud "shrank to around 100. By comparison, the FBI had about 1,000 agents deployed on banking fraud during the S&L bust of the 1980s and '90s, said Anthony Adamski, who oversaw financial crime investigations for the FBI at the time."

-- Peter Viles
Your thoughts? Comments? E-mail story tips to Peter Viles.
Photo: FBI Director Robert Mueller; Credit: Getty Images.