Mortgage Fraud one of Top Scams for 2006
On April 26, 2006, the California Department of Corporations ("DOC"), California's investment and financing authority, identified mortgage fraud as one of the top 10 scams for 2006 that consumers should be aware of. The DOC press release described mortgage fraud as predatory mortgage lending involving abusive practices, usually taking place in the sub-prime market, and targeting borrowers with weak credit histories.
The most common abusive lending practices, according to the press release include excessive fees and prepayment penalties, loan flipping and other predatory practices. Further, foreclosure schemes are increasing, which lead homeowners into believing they can save their homes by transferring their deeds and paying up-front fees. Perpetrators profit by re-mortgaging the home and pocketing such fees. In 2006, the DOC, as part of a California task force, which includes local district attorneys and the California Attorney General, filed a judgment against a major sub-prime lender to resolve predatory lending allegations. The judgment will provide $295 million in restitution, and requires reforms of the company's business practices.
What the press release did not mention is that mortgage fraud also includes mortgage servicing fraud. A servicing agent (also known as a "servicer") is responsible for receiving a mortgage payment, crediting the payment to principal and interest, keeping payment records, providing account statements, imposing late charges, pursuing delinquent borrowers and initiating foreclosure proceedings when borrowers default. Mortgage servicing fraud can include manipulating the date a payment is received to artificially create a late payment and applying part of the payment to something other than principal or interest, thus creating a partial late payment or deficiency. Predatory servicing can also include paying a homeowner's property taxes late, and adding improper late penalties to the homeowner's account without their knowledge. Such predatory servicing practices can lead to negative credit notations, loss of equity and eventually loss of the borrower's home through foreclosure. Predatory mortgage servicing, like predatory lending in general, often targets sub-prime borrowers who usually do not have the necessary resources to combat mortgage predators.