Bogus mortgage "rescues" are a growing business -- and state and federal authorities can't do much about it

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Why loan modification scams are booming

By Paul Kiel

During the go-go years of the real estate bubble, shady mortgage brokers thrived, thanks to the sluggish response of regulators and law enforcement agencies. Amid the ruins of the crash, there's a new boom attracting unscrupulous mortgage professionals: "Foreclosure rescue" companies promising -- in exchange for a large upfront fee -- to persuade lenders to modify desperate homeowners' mortgages. And authorities are again finding themselves ill-equipped to deal with the deluge.In a giant game of whack-a-mole, law enforcement agencies at all levels across the country have filed suit against 150 such companies, but they continue to proliferate, and the number of consumer complaints continues to rise.

"This is a very big scam," says California Attorney General Jerry Brown. "They're all over the place, and as soon as you get one, they migrate to somewhere else."

The case of one particularly aggressive firm, 21st Century Legal Services, shows just how ineffective authorities' moves against the companies often are.

Four states have sued 21st Century, and at least three more have open investigations. Over 150 consumers from more than 30 states have filed complaints against 21st Century with the Better Business Bureau. No active firm has more complaints.

Yet the company forges on. Operating under a new name, Fidelity National Legal Services, it continues to solicit consumers nationwide, even in states where authorities have won court injunctions.

Homeowners do not have to pay a company to negotiate on their behalf: They can always contact their mortgage servicer directly for a loan modification, at no cost. But consumers often find the process frustrating. For those who want guidance, nonprofit housing counselors approved by the Department of Housing and Urban Development will help for free.

Consumers should especially be wary of companies charging upfront fees or touting guarantees. The Illinois attorney general says that her office has yet to see any such company operate within the boundaries of state law.

Deception seems to be at the heart of the business model. Internal e-mails from an Anaheim-based firm sued in July by the Federal Trade Commission and the states of California and Missouri reveal a boiler-room sales operation where management motivated its "counselors" with commissions and "Rolex races."

When the company's operations manager wrote that the firm ought to inform clients that it couldn't stop foreclosure, a sales manager, Feisal Cortez, replied: "If we say 'WE DO NOT STOP FORECLOSURE' we are going to lose 75% of our business. If they implement this verbage (sic) in customer service … excuse my language but WE'RE FVCKED!"

The ongoing suit charges that the company, U.S. Foreclosure Relief, and eight associated firms deceived consumers. Steve Krongold, the lawyer for the firm's owner, said there were "a couple errant rogue salespeople who lied in e-mails and on calls," but that the company had been making progress in modifying its customers' loans when a court order in the case this summer allowed authorities to take control of the company.

Real estate professionals and mortgage brokers are the driving force behind the boom. Indeed, some of the same brokers who stoked the housing boom are now making their living off homeowners stuck in the sort of toxic loans they peddled.

"The mortgage brokerage business dried up, and so the same loans that they went out and originated, they're coming in to try and modify," said Thomas McNamara, a former prosecutor appointed by the federal court to assess U.S. Foreclosure Relief's business.

Take the case of the Southern California-based 21st Century Legal Services, and its president, Andrea Ramirez.

In a lawsuit filed in federal court in California, former clients have accused Ramirez, then working as a mortgage broker, of fabricating documentation to support their application in 2006 for an adjustable-rate loan they couldn't afford.

Susan McClanahan and her husband say that it was only after they signed their loan documents that they discovered the application misstated their income and assets. They also found that Ramirez had included in their application a letter from a James C. Henry, who claimed to have prepared the couple's income tax returns for the past 11 years. (Henry told us he hadn't written the letter and said his only contact with Ramirez came when he prepared her returns a few years ago.)

Ramirez did not respond to multiple requests for comment. Ramirez's lawyer, Kathleen Moreno, responded only with a statement that she'd been "informed of hundreds of positive statements regarding [21st Century's] services."

Since no one from 21st Century or Fidelity National Legal Services would answer questions about the company, it's impossible to verify such a claim. It does appear, however, that the company hasn't even been able to prevent foreclosures for its own employees.

Ruby Encina, a close business associate of Ramirez, was foreclosed on and declared bankruptcy in July. In her bankruptcy petition, she listed her occupation as "Customer Service," 21st Century Legal Services. Encina could not be reached for comment.

In nearly a dozen interviews, recent clients of 21st Century Legal Services told the same story over and over again.

Loan mod firms pull in clients via TV, radio, direct mail, Web sites, e-mail and phone calls. 21st Century has used all of these avenues, but it has been most persistent in directly calling struggling homeowners. One homeowner complained that the firm had been calling three or four times each day.

21st Century's pitch is particularly alluring, because it goes even beyond a guarantee to provide the "proposed loan modification." All of its potential clients get this letter, which goes so far as to detail what the new monthly payment (based on a rock-bottom interest rate ranging from 3.25 percent to 4.5 percent) will be and when it will start. Some think 21st Century is offering a refinancing.

An undercover tape made by the North Carolina attorney general's office shows a 21st Century salesman in action. Over the course of the 18-minute phone call, the rep, who refused to give his full name, threw everything he had at his mark, from "30-year fixed or whatever kind of fix you need" to criticizing all those misguided homeowners who've tried to modify their loans "for free."

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http://www.salon.com/news/feature/2009/09/...m=/news/feature

[Peikko 1,575]

Why do you care so much about the stupid people Bat? They can go to hell, no one cares.

[Joseph & Ana 0]

Because they are the democrat voting base.

[Ban Hammer 14,665]

Because they are the democrat voting base.

[alienlovechild 75]

Some people get victimized repeatedly because they aren't financially savvy. They may be competent in other matters but some people just go from one disaster to the next. They think that somebody is going to get them a break if they tell their tale of woe but most people don't want to get too close or they'll get hit up for a "loan" as well. It certainly doesn't help you get a better job as employers don't want to hire basket case employees with too many personal issues.