Consumer Law

Times Reports on Loan Fraud, Foreclosure Rescue Scams, Financial Advice, and More

By Jeff Sovern

Sunday's issue brought Robert J. Shiller's Economic View column, How About a Stimulus for Financial Advice?, suggesting that the government subsidize personal financial counseling and that if it had done so years ago, the housing bubble would have been less severe.  Along the way Shiller cites some recent papers on how many consumers are financially unsophisticated and how lenders take advantage of such consumers. Bob Tedeschi's Mortgages Column the same day, Loan Fraud Seen on the Rise, discussed a report by the Mortgage Asset Research Institute that says mortgage fraud has risen even while mortgage originations have fallen.  An excerpt:

The report, released in early December, found that 36 percent of the fraudulent mortgage activity involved loan professionals? misrepresenting borrowers? incomes, while another 20 percent involved misrepresentations of borrowers? employment.

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Jennifer Butts, the Research Institute?s director of operations, said the survey results surprised her. Some industry executives had believed that the more unscrupulous mortgage brokers and loan officers had fled the industry or lost their jobs in the recent downturn, once lending standards tightened and loan volumes dropped.

?But we have people in the industry who didn?t get weeded out,? Ms. Butts said. ?And now they have fewer transactions on which to make a profit, so they?re just a little more desperate.?

Last Thursday, January 15, the Times published Swindlers Find Growing Market in Foreclosures, about foreclosure rescue schemes.  An excerpt:

Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost her job as a waitress in two restaurants. She received a call from a company called Foreclosure Solutions Experts, promising to stop the foreclosure and lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland said.

?She showed me other clients? files, and they were paying $650 a month,? she said. The charge for the service was $1,300, which Miss McClelland paid in installments, borrowing the money from friends and relatives.

When the loan servicer notified her that the house was still in foreclosure, Miss McClelland said, the representative from Foreclosure Solutions Experts told her that the matter had been taken care of.

?She told me everything was all settled; I don?t have to worry about anything,? Miss McClelland said. ?All I had to worry about was getting the rest of the money to her.?

According to a suit brought by the Illinois attorney general in November, Foreclosure Solutions Experts does little or nothing to help consumers, and when it does take action, the result is often a repayment plan unsuited to the borrower?s ability to pay. The suit alleges that the company never contacted Miss McClelland?s lender, HSBC.

On January 11, The Times ran a column by Andrew Martin, Inspecting Our Food: How Many Cooks?, arguing that it doesn't make sense to divide responsibility for food inspections between the Department of Agriculture and the FDA and discussing other problems in the food inspection system.   Here is a report from January 9 about Citibank's willingness to support the stripdown amendment to the bankruptcy law. 

Full post as published by CL&P Blog on January 21, 2009 (boomark / email).