By William Hudson
The websites of the Office of the Comptroller, FDIC, Department of Justice, Attorney General and FBI provide numerous resources and services for consumers to report loan modification scams. The information on these websites state that it is unlawful to promise a loan modification and illegal to require payment in advance of a modification being accepted. Homeowners who feel they have been victimized by a loan modification scam are encouraged to report the perpetrators. However the complaint form is geared towards reporting small time scammers and there is no form to report the major banks that are the biggest perpetrators of modification scams in the country. The FDIC lists loan modification scams they have successfully prosecuted- but predictably not one big bank has been prosecuted.
Last week five California men pled guilty to a loan modification scam that fleeced more than 400 troubled homeowners that were seeking the assistance of the Home Affordable Modification Program. According to the Special Inspector General the men targeted, “struggling homeowners and made a series of misrepresentations to get them fork over thousands of dollars in exchange for supposed home loan modification assistance.” Excuse me but how is this any different than what the big banks have been doing with their HAMP modification scam?
When will the headlines read, “Last week, fifty executives from Bank of America, CitiMortgage and Wells Fargo pled guilty to a loan modification scam that fleeced more than 5 million troubled homeowners that were seeking the assistance of the Home Affordable Modification Program”? When one of the big servicers (Wells Fargo, CitiMortgage, Chase) agrees to modify a homeowner’s loan and then revokes the agreement after accepting months of payments from a homeowner (knowing they had no intention of modify the loan)- why are they not held to the same standard as the scam artists?
A double-standard exists for the “Too Big to Jail” crowd. The complaint forms online are engineered for complaints against small modification operations instead of allowing homeowners to use the same complaint form to report big banks that deceive, renege and commit fraud on unsuspecting borrowers. Why are the big banks allowed to pretend they intend to modify a loan when they don’t? How can it be legal to accept payments and then apply the payments without the homeowner’s approval to late fees or a suspense account (instead of to principal or interest)? Even more unlawful is the fact that servicers claim they have the right to modify loans when they don’t, and then string borrowers along while playing a game of cat and mouse with the documents- knowing all along the mouse doesn’t have a chance in hell of receiving a loan modification. In many cases, the fees paid to servicers are HIGHER if they are servicing a loan that is in default. This situation creates a conflict of interest, since a servicer will profit by dragging out a default situation through modification to increase the fees that they earn.
As usual, Government and law enforcement choose to focus on the small players and not the large banks that are the true culprits of this scam. Instead of attacking the low man on the totem pole, why not go after the big guns who are perpetuating massive fraud on the American public by using modification as a payment claw-back tool and a way to create a faster and larger default? HAMP provides false hope and exploits the homeowner who is already vulnerable and suffering from life events that have resulted in financial duress.
The low-level predators in this particular scam included Roscoe Ortega Umali and his co-conspirators who convinced their victims to send “reinstatement fees” and “trial mortgage payments” to participate in HAMP, a Treasury Department program. The scammers pocketed $3.8 million from October 2012 to September 2014. The big banks follow the exact same business-crime model and have convinced millions of homeowners to do the same thing the scammers advocated with essentially the same poor rates of modification- while pocketing untold millions from unsuspecting homeowners who didn’t receive a modification. Why should the law make distinctions between two groups who are effectively involved in the same scam just because one is a bank? This double-standard is reflected in the fact that if you forge documents to steal a house you commit a felony and spend 7 years at Club Fed, while when a bank forges a mortgage note it is considered a “bad business practice”.
“Umali and his cohorts made false claims of operating a non-profit company, brazenly used the U.S. Treasury seal on fabricated documents, and invented fictitious HAMP benefits,” according to Christy Goldsmith Romero, Special Inspector General for the Troubled Asset Relief Program. She announced the guilty pleas on Wednesday. Okay Ms. Romero, would you like to explain why TARP has focused on the low hanging fruit while banks who have been rescued by the American taxpayer are doing the same on a much larger scale? Why is it okay for the big banks to do essentially do the same thing as the “scammers” with no oversight or punishment?
The scammers contacted homeowners through nationwide mass mailings much like the big banks do. It is not unusual for a distressed homeowner to receive multiple offers to modify their mortgage from the servicer of their loan. The scammers did “nothing to help modify any mortgages,” according to the IG. “Instead, they used the victims’ payments for their own personal benefit and to further the fraud scheme.” This is exactly what the big banks have done but they have harmed way more than 400 homeowners- in fact TARP has helped less than 30% of all homeowners who have applied for loan modifications. Like the scammers in this story, the big banks use the victims’ trial modification payments for their own personal benefit and to further the fraud scheme. However, while the scammers ran a micro-HAMP fraud program, the big banks operate a macro-HAMP fraud program- and the Special Inspector General looks the other way.
The big banks have engaged in a scheme where they accept borrower’s trial payments under HAMP to obtain a loan modification when the homeowner would have been better off using those funds to retain an attorney or renting a moving truck. It is in the banks’ best interest to offer a trial modification they know will not be approved in order to obtain payments from the homeowner while also increasing the amount the servicer will receive when the home is foreclosed on.
The five defendants were indicted last October and they will be sentenced this summer. Each faces a maximum penalty of 20 years in prison. Meanwhile the bankers who offer HAMP modifications with no intention of offering a permanent loan modification provide false hope, take payments under false circumstances, and force homeowners further into arrears.
There is evidence that the big banks are also using other types of assistance programs to foreclose. CitiMortgage is known to offer a “traditional” or ” in-house” modification called a repayment plan. The homeowner will make three payments as required according to the repayment agreement as CitiMortgage concurrently makes arrangement to foreclosure (dual-tracking). Despite concrete evidence that the homeowner has a contract with the bank in which all elements of a contract are fulfilled (acceptance, consideration, a meeting of the the minds, etc.)- CitiMortgage will then revoke the modification without reason and provide no way to appeal. Later on CitiMortgage will claim that the modification was a HAMP modification and blame the denial on the investor (Fannie or Freddie)- when they received no such denial from the investor. The big banks are much more creative and destructive than the scam artists are- and are doing so in direct conflict with the American taxpayer who bailed them out for their fraud scheme. HAMP has been a diabolical disaster from day one and so has the oversight for this program that was never intended to provide wide-scale relief.
HAMP has accomplished former Federal Reserve Chairman Timothy Geitner’s goals of ‘greasing the runways’ for the banks to foreclose in a methodical manner. HAMP is not an opportunity for homeowners to modify their loan insomuch as it is a program for banks’ to extort payments, prey on the fragile hopes of homeowners in distress, while increasing servicer profits when the home is foreclosed. The scammers lacked the corporate persona, the political connections and government and taxpayer backing, but when you look at their business model- they are surprising alike.
Filed under: foreclosure