Regulators struggle to contain foreclosure fraud
2009/04/08, 5:56 pm
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Distressed homeowners fall victim to scams promising to save their homes
The government is struggling to hold back a wave of foreclosure “rescue” scams arising from the growing number of homeowners facing the loss of their homes. It may be fighting a losing battle.

On Monday, Treasury Secretary Timothy Geithner declared war on the con artists who prey on borrowers desperate to find a way to keep their homes.

“American homeowners have been through enough in the past few years,” Geithner said, adding that the last thing they need is to get scammed as they struggle to keep their homes.

“These predatory scams callously rob Americans of their savings and potentially their homes,” he said. “We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar.”

But as the problem spreads, regulators and prosecutors seeking to crack down on these scams seem to be fighting a forest fire with a garden hose.

Some 3 million households have already lost their homes to foreclosure. As of Jan. 30, 2.9 million people were 60 days or more past due on their mortgages, one out of 10 were delinquent, according to the government’s Hope Now Alliance. Another 6 million households are expected to face foreclosure in the next several years, according to private estimates.

The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements and has filed five new civil cases to halt illegal loan modification scams. Attorney General Eric Holder says the FBI is investigating about 2,100 mortgage fraud cases.

“If you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you,” Holder said.

Over the past year homeowners have been flooding state attorneys general with complaints about for-profit loan modification consultants. While some of these outfits are legitimate, authorities say many are con artists.

Potential victims are easily identified: various filings, including “pre-foreclosure” notices, are public records, providing all the details a would-be scammer needs to target fraud victims. Many snare victims via Web sites promising quick fixes over the phone.

The scams take several forms but usually involves payment of an upfront fee in exchange for a promise to resolve a pending foreclosure. Some of these foreclosure “counselors” simply pocket the fee, usually a month’s mortgage payment, with little or no further contact with the distressed homeowner. Others compound the fraud by convincing the homeowner to sign over the deed or present forged documents purporting to show the foreclosure has been set aside.

Some scammers will file a bankruptcy in the homeowner’s name without consent or knowledge. While bankruptcy usually stops a foreclosure temporarily, this form of the scam adds insult to injury by leaving the homeowner with additional legal costs and the burden of a credit record that will make it difficult to buy or rent a new home for up to 10 years.


Monday’s joint announcement by the Treasury, The Department of Justice, the Department of Housing and Urban Development, the Federal Trade Commission and the Illinois Attorney General provided homeowners with a high-profile warning to avoid foreclosure rescue scams and a pledge to better coordinate government efforts to stop them.

The government’s Financial Crimes Enforcement Network reported in February that banks and other lenders filed some 62,000 so-called Suspicious Activity Reports relating to a wide variety of mortgage frauds during the 12 months ended in July, 2008. That’s a 44 percent increase over the preceding year.

Despite the widespread publicity and broad economic damage inflicted by mortgage fraud over the past several years, efforts to thwart scams have fallen far short. Part of the problem lies in the fractured regulatory structure tasked with combating mortgage fraud. Of those 62,000 reports of possible mortgage fraud, the Office of Thrift Supervision handled 47 percent, The Office of the Comptroller of the Currency handled 36 percent and the rest went to the Federal Reserve, the Federal Deposit Insurance Corp. and the National Credit Union.


The Federal Trade Commission also enforces various consumer protection laws as part of a broad portfolio of regulatory oversight that includes unfair trade practices and antitrust reviews. Over the years, its staffing has not kept up with the overall growth of the economy and population. The agency’s new chairman, Jon Leibowitz, recently testified that the FTC has about 1,100 full time employees, down from about 1,800 in 1980.

While Washington’s attention recently has focused on a broad overhaul of financial regulations, efforts to tighten consumer protection laws against mortgage fraud have moved slowly. Last year, Sen. Herb Kohl, D-Wis., introduced a Senate bill to protect victims of foreclosure rescue scams. The bill died in the Senate Banking Committee.

The surge in foreclosure rescue fraud mirrors the ongoing rise in foreclosures, a trend that has proved stubbornly resistant to public and private efforts. Over a year ago, the Bush administration established the Hope Now Alliance to prod lenders to negotiate voluntary loan modifications with troubled homeowners. Though the group says it has helped several million homeowners work out new terms and payment plans, the results have been disappointing. In some cases, monthly payments increased under these new payment plans. In December, the Office of the Comptroller of the Currency issued a report noting that more than half of those modifications left homeowners facing foreclosure again within six months.

But the national attention provided a boon to foreclosure rescue scammers. Last month, the FTC shut down a New Jersey-based company called Hope Now Modifications that claimed affiliation with the widely publicized Hope Now Alliance. According to the complaint, callers to the company’s telemarketers were promised loan modifications and told they could avoid foreclosure in return for a “mitigation escrow fee.” After paying the fees, consumers either didn’t hear back or were told negotiations with lenders were proceeding smoothly. Some homeowners later found out their lender hadn’t been contacted. Those who complained to the company and asked for a refund didn’t get their money back, the FTC said.

But the case demonstrates the difficulty regulators and prosecutors have shutting down these operations. A New Jersey judge issued a restraining order against Hope Now Modifications and the site was shut down. But later that day, Leibowitz told a congressional hearing last month, the site “popped up again under a Web site registered in Germany” and was shut down again.

“So we have a little long-arm problem in terms of asserting our jurisdiction,” Leibowitz said.

Some of those offering to help distressed homeowners are former brokers, agents and appraisers who’ve seen their previous business evaporate after the housing market collapsed under an avalanche of rogue lending many of them participated in. Some foreclosure consultants offer legitimate services. But it’s not clear whether paid advice is more effective than the help available to homeowners from nonprofit credit counselors who also work with lenders at no charge.

Some scammers have successfully tricked victims by mimicking those non-profit counseling organizations. Others have become adept at Web search marketing, buying keywords representing legitimate counseling organizations.


Neighborworks America, a national housing advocacy group, filed two trademark complaints last month with online search engines to prevent companies from using the group’s name and logo to promote foreclosure rescue schemes.

One company offering referrals for a variety of financial services is riding the coattails of the  Treasury’s Web site, , which Treasury Secretary Geithner touted in Monday’s announcement. The official site is devoted to the government’s various efforts to bail out the financial system and help homeowners avoid foreclosure. Web surfers who navigate to the unrelated are referred to dozens of links purporting to help consumers “Get out of Debt,” “Stop Foreclosure Now” and get “Payday Loans in 1 hour.”

According to, is registered to Admin Search Marketing, Ltd, based in Tortola in the British Virgin Islands. A company representative was not immediately available for comment.

In most cases, prosecutors who catch foreclosures rescue scammers opt for civil actions aimed at recovering money for bilked consumers. Few cases result in criminal penalties.

That may be changing as state attorneys general begin gearing up to go after the latest wave of mortgage fraud. This year, Arizona Attorney General Terry Goddard brought three cases charging felony theft, fraud and money laundering. Two defendants pleaded guilty; a third case is pending. California’s attorney general won convictions last year against three people who stole more than $700,000 in upfront fees of $1,500 to $5,000; those sentences ranged from probation to six years in prison.



Pulte to buy Centex in $1.3 billion deal
2009/04/08, 4:46 pm
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DALLAS – Pulte Homes Inc. agreed to acquire Centex Corp. Wednesday in a stock-for-stock deal valued at $1.3 billion that will create the nation’s largest homebuilding company.

The transaction, which also includes $1.8 billion of debt, will give the combined business a strong liquidity position with more than $3.4 billion in cash as of March 31.

The pairing of Pulte and Centex comes at a time when homebuilders are still struggling to find their footing as credit remains tight and buyers continue to be leery of big-ticket purchases. The industry in turn has attempted to stem the bleeding by drastically scaling back new construction and throwing more incentives at potential buyers in order to unload existing inventory.

Pulte President and Chief Executive Officer Richard J. Dugas Jr. was optimistic that the combination “puts us in an excellent position to navigate through the current housing downturn.”

As part of the deal, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex that they own. The transaction is valued at $10.50 per Centex share based on Pulte’s Tuesday closing stock price of $10.77. That represents a 38 percent premium to Centex’s closing price of $7.62 Tuesday.

Centex had approximately 124.4 million shares outstanding for the quarter ended Dec. 31, 2008.

The companies called the deal a merger, but Pulte stockholders will own about 68 percent of the combined business and Centex shareholders will own the remaining 32 percent. The acquisition comes a little over a month after Pulte adopted a shareholder rights plan to help preserve the value of some deferred tax assets generated by net operating losses, as well as other tax benefits.

Pulte said it enacted the rights plan to decrease the likelihood of “an unintended ownership change.” The plan was not adopted as an anti-takeover measure, it added.

The combined company will use the Pulte name and will be based in Bloomfield Hills, Mich., the current headquarters of Pulte. The companies said the business plans to maintain a significant presence in Dallas, where Centex is based.

Upon completion of the transaction, Dugas will assume the positions of chairman, president and chief executive officer of Pulte Inc.

While the transaction is geared toward helping the companies make their way out of the housing downturn, it also is expected to save Pulte about $350 million a year. That includes $250 million in overhead costs and $100 million from the anticipated retirement of more than $1 billion in debt by the end of the year.

The newly combined company will have access to more than 59 U.S. markets and gives Pulte access to Centex’s land holdings in Texas as well as North and South Carolina.

Pulte and Centex contend that the deal will help them capitalize on what many see as a bit of an uptick in the housing market. Last month the Commerce Department said new home sales climbed 4.7 percent in February, providing some hope that the sales may have reached their bottom and are on their way toward a recovery.

“We believe this is the right combination at the right time in the business cycle. By acting decisively now, we’re creating unrivaled firepower to capitalize on the opportunities in homebuilding that are now becoming visible on the horizon,” Centex Chairman and CEO Timothy Eller said in a statement.

Eller will become Pulte’s vice chairman and will also work as a consultant for two years following the acquisition’s completion.

Aside from Eller, Pulte’s board will be expanded and will include three other Centex board members. It will also include eight members of Pulte’s current board, including founder and Chairman William J. Pulte.

The acquisition, which was unanimously approved by both homebuilders’ boards, is expected to close in the third quarter. It is expected to qualify as a tax-free reorganization.

Layoff insurance the latest carrot for homebuyers
2009/04/03, 4:20 pm
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‘Extra safety net’ for those who want to buy a home but fear the ax
The Associated Press
updated 5:15 p.m. ET, Thurs., April. 2, 2009

LOS ANGELES – Free granite countertops, swimming pools and landscaping aren’t going to convince anyone who’s afraid of losing a job to buy a home. But what about a promise to pay your mortgage if you get laid off?

With the unemployment rate at a 26-year high and home sales still in the dumps, a growing number of homebuilders and even some real estate agents are trying to coax buyers with a kind of mortgage unemployment insurance.

Major builders offering job loss mortgage payment plans include Lennar Corp., Pulte Homes Inc., The Ryland Group Inc. and Toll Brothers Inc.

“We’re literally adding at least one builder a day throughout the country,” said Todd Ludlow, senior vice president of Rainy Day Foundation, a nonprofit organization that administers the programs for many builders.

Builders can pay anywhere from $450 to $900 per customer for the coverage. Some absorb the cost as they would any other sales promotion, while others pass it on to buyers, Ludlow said.

In January, Lennar unveiled a version of Rainy Day’s program called “Piece of Mind Mortgage Payment Protection Plan.” Lennar covers monthly mortgage payments between $1,800 and $2,500, depending on the market, for a maximum of six months. Buyers can take advantage of the program only if they lose their job within the first two years after purchasing the home.

Launched last month, Toll’s mortgage protection program only covers homebuyers who finance their purchase through the company’s mortgage lender. The plan covers a maximum of six monthly payments of up to $2,500 a month — including interest, taxes and insurance — if the homeowner loses his or her job within two years after closing on their home.

“It’s for those who perhaps are not feeling themselves in imminent danger but just want that extra safety net,” said Kira McCarron, chief marketing officer for luxury homebuilder Toll, which is based in Horsham, Pa.

One of the most generous programs in the industry comes from Cousins Properties Inc., which is marketing the effort with its 10 Terminus Place luxury condo tower in Atlanta.

Cousins is offering to refund to buyers all their mortgage payments should the appraised value of their condos fall below the sale price after three years. The company, Cousins will let a buyer walk away from their property if they lose their job or just can’t make their mortgage payments anymore.

“You won’t have a foreclosure, you won’t have a credit issue and you won’t have any future obligation,” said Tom Bell, Cousins Properties’ chief executive, adding such homeowners would sacrifice their 5 percent downpayment.

Some real estate firms also are getting into the act.

Keller Williams Realty Inc. began offering job loss protection through the Rainy Day Foundation a couple of weeks ago as a test program in South Florida with an eye to an eventual national rollout.

“We’re bringing it to our sellers as a marketing opportunity,” said Greg Cook, spokesman for Keller Williams South Florida.

The firm also is offering it to buyers who enlist a Keller Williams agent to buy a home that’s not being listed through the company, Cook said.

The plan pays up to $2,500 to cover the full mortgage payment, including taxes and insurance, for six months.

The insurance costs $650, which can be structured into the closing costs paid by the seller, or it can be paid by the lender or the agent, Cook said.

Any buyers who’d rather skip the job loss insurance will get the $650 applied to the cost of the home, Cook said.


That’s a good idea, suggests J. Robert Hunter, director of insurance at the Consumer Federation of America.

Hunter said that homebuyers might be better off passing on the mortgage payment insurance plans — which he generally called “a gimmick” — and ask for a discount.

“If we’re in for a two-year recession and I lose my job, I may not get it back for two years, and six months is still not going to save me,” Hunter said. “I personally would want to find out how much money I could save buying the house without it.”