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April 6, 2009

FTC in Massive Crackdown on Loan Modification Industry

The Federal Trade Commission (FTC) has stepped up its efforts in the battle against real estate and mortgage fraud. As I reported in September of 2007 (see “FTC Issues Warning on Mortgage Lenders Ads“), the FTC has long had its eye on deceptive practices within the real estate industry, so it comes as no surprise that the Commission today announced a massive crackdown on suspected fraud and deception by loan modification companies.

The FTC, which administers a wide variety of consumer protection laws, is seeking to halt the proliferation of mortgage relief scams—which, Flipping Frenzy readers know, targets distressed and vulnerable homeowners who are delinquent on their mortgage payments or facing foreclosure—through increased law enforcement, consumer outreach, and close coordination with federal, state, and non-profit partners.

Watch FTC Chairman Jon Leibowitz explaining today’s development:

Specifically, the FTC announced law enforcement actions against five loan modification and foreclosure rescue operations using what it calls “deceptive tactics to market their mortgage modification and home foreclosure relief services,” including firms that marketed their services by giving what the FTC calls “the false impression they were affiliated with the federal government.” Today’s move brings to 11 the number of loan modification and mortgage foreclosure rescue scams brought down by the FTC in the last year.

The FTC also announced today it has sent warning letters to 71 companies who may be deceptively marketing loan modification or foreclosure rescue services. The FTC identified these companies through a nationwide review of Internet and other advertisements and warned these companies that their ads may violate federal law.

The FTC’s five law enforcement actions target what’s what the Commission believes to be perpetrators of mortgage-related scams. According to the FTC, these schemes typically operate in the following way.

  • First, they use terms like “guarantee” and “97% success rate” to mislead consumers about the mortgage modification or foreclosure relief services they can provide
  • They charge up-front fees for these services—fees legitimate nonprofit organizations do not charge
  • They use copycat names or look-alike Web sites to appear to be a nonprofit or government entity
  • Often, after collecting the fee, these companies do little or nothing to help consumers, contends the FTC

In each case described below, the FTC is seeking or has already obtained a temporary restraining order to halt the company’s alleged illegal conduct:

  • Federal Loan Modification Law Center (FedMod). FedMod markets mortgage loan modification and foreclosure relief services to homeowners who are in financial distress, delinquent on their mortgages, or in danger of losing their homes to foreclosure. According to the FTC’s complaint, FedMod charges consumers from $1,000 to $3,000 in fees for these services, much of which must be paid up-front, but fails in numerous instances to obtain the promised loan modifications. In radio advertisements, the FTC alleges, FedMod induces homeowners to call its toll-free number by misrepresenting that it is part of or affiliated with the federal government, although it is not. According to the complaint, FedMod often fails to answer or return consumers’ calls or provide updates about the status of their loan modifications, and assures consumers that negotiations with their lenders are proceeding when, in fact, little or no effort has been made to contact the lender.
  • According to the FTC’s complaint, defendant Thomas Ryan used a foreign Internet registrar to falsely register two sites – and The sites were used to entice financially strapped consumers to seek mortgage loan modification services under the guise that the services were associated with, or were actually, the U.S. government, including HUD and the Treasury Department. The FTC alleges that the defendant misled consumers nationwide. A federal district court granted the FTC’s motion for a temporary restraining order which required the Internet Service Provider (ISP) hosting the sites to immediately remove them from the Internet. The FTC and the defendant stipulated to a preliminary injunction prohibiting him from holding himself out as an agency of any U.S., state, or local government, or as being affiliated with any such agency.
  • Home Assure d/b/a Expert Foreclosure. In this case, the FTC alleges that the defendants promise consumers facing imminent home foreclosure that they can stop the foreclosure, regardless of the amount the consumer owes his or her lender. The defendants are charged with falsely claiming that they have special relationships with lenders, have helped thousands of consumers avoid foreclosure, and will provide a 100 percent satisfaction money-back guarantee. They typically charge consumers an up-front fee of $1,500 to $2,500 but, the FTC alleges, do little or nothing to help them avoid foreclosure and fail to give refunds when foreclosures are not stopped.
  • Hope Now Modifications LLC and New Hope Property LLC d/b/a New Hope Modifications LLC. On March 24, the FTC announced two related cases alleging that the defendants misled consumers about their ability to provide mortgage loan modification and foreclosure relief, and misrepresented that they were affiliated with or part of the HOPE NOW Alliance, the non-profit, HUD-endorsed organization that is a broad-based coalition of credit and home ownership counselors, lenders, and other mortgage market participants. In each case, the court issued a temporary restraining order with an asset freeze and set dates for a preliminary injunction hearing. The New Jersey Attorney General also filed state court actions against both sets of defendants, and those cases are in litigation.
Posted By: Ralph Roberts @ 8:56 pm | | Comments (2) | Trackback |
Filed under: FTC,Loan Modification Fraud

September 9, 2008

Bear Stearns and EMC Mortgage Agree to Pay $28 Million Fine for Massive Violations

Bear Stearns Logo.jpg Bear Stearns and its subsidiary, EMC Mortgage, have agreed in principle to pay a multi-million dollar fine to settle Federal Trade Commission (FTC) charges that they engaged in unlawful practices while servicing consumers’ home mortgage loans. The FTC–which works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid the–charged the two companies with misrepresenting the amounts borrowers owed, charging unauthorized fees–such as late fees, property inspection fees, and loan modification fees–and engaging in unlawful and abusive collection practices.

EMC Mortgage Corp Logo.jpg The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars both companies from future violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:

  1. Bars the defendants from misrepresenting amounts due and any other loan terms.
  2. requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans.
  3. Bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract.
  4. Prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes.
  5. Prohibits the defendants from violating the the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA).

The settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information they obtain about consumers’ loan accounts, before servicing those accounts. They must also obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.

In its complaint, the FTC pointed out the a prominent role Bear Stearns and EMC played in the secondary market for residential mortgages. During the explosive growth of the mortgage industry, both companies acquired and securitized loans at a rapid pace, but they also paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, Bear Stearns and EMC neglected to obtain timely and accurate information on the loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. (As an aside, these practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.)

According to the complaint, EMC is characterized as the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or Alt-A (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (i.e., “pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.

If the U.S. District Court for the Eastern District of Texas approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941.

Posted By: Ralph Roberts @ 6:22 pm | | Comments (14) | Trackback |
Filed under: Bear Stearns,EMC Mortgage,FTC

September 12, 2007

FTC Issues Warning on Mortgage Lenders’ Ads

The Federal Trade Commission (FTC) is warning mortgage brokers and lenders, and media outlets that carry their advertisements for home mortgages, that some of the advertising claims currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.

Many mortgage-related advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story–for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period. Home ownership is the American dream, but it should not become a nightmare for consumers who do not have the information they need to understand the terms of their mortgage!

In warning letters, the FTC is advising more than 200 advertisers and media outlets that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act. The ads, including some in Spanish, were recently identified during a nationwide review focused on claims for very low monthly payment amounts or interest rates, without adequate disclosure of other important loan terms. For example, some ads touted rates as low as “1%” but failed to disclose:

  • …that the stated rate was a “payment rate”–not the interest rate–that applied only during the loan’s initial period
  • …that low advertised payments applied for only a short period
  • …the loan’s Annual Percentage Rate (APR), the uniform measure of the cost of credit that enables consumers to shop for and compare mortgage offerings.

Some ads promoted only incredibly low monthly payments but failed to adequately disclose the terms of repayment, including payment increases and a final balloon payment.

During the past decade, the FTC has brought 21 actions against companies in the mortgage lending industry, focusing in particular on the subprime market. Several of these cases have resulted in large monetary judgments, with courts collectively ordering that more than $320 million be returned to consumers. These enforcement actions have targeted deceptive or unfair practices in all stages of mortgage lending, from advertising and marketing through loan servicing, by mortgage lenders, brokers, and loan servicers.

To help consumers recognize deceptive mortgage ads, the Federal Trade Commission has created a Consumer Alert, “Deceptive Mortgage Ads: What They Say; What They Leave Out.”

Posted By: Ralph Roberts @ 5:28 pm | | Comments (2) | Trackback |
Filed under: FTC

May 11, 2006

FTC Settles Privacy and Security Charges Against Title Company

A title company that claimed to maintain “physical, electronic and procedural safeguards” to protect its customers confidential financial information, but instead tossed home loan applications into an open dumpster, has agreed to settle Federal Trade Commission (FTC) charges that it violated federal laws. The settlement with Kansas City, Kansas-based Nations Holding Company, requires that the company establish and maintain a comprehensive information security program that includes administrative, technical, and physical safeguards. The settlement also requires the company to obtain–-every two years for the next 20 years–an audit from a qualified, independent, third-party professional that confirms that the company’s security program meets the standards of the order.

Nations Holding Company is privately held. It provides real estate services in 44 states, and its subsidiary, Nations Title Agency, provides a variety of services in connection with financing home purchases and refinancing existing home mortgages. As we all know, the careless handling of consumers’ sensitive financial information is an open invitation to identity thieves who regularly troll our trash for documents that are ultimately used in real estate fraud schemes.

The FTC charged that Nations Holding Company’s failure to provide reasonable and appropriate security to protect its customers information violates the FTC’s Safeguards Rule, which requires financial institutions to take appropriate measures to protect customer information. The complaint also alleged that the company’s privacy policy claims were deceptive because of these failures, which is in violation of the FTC’s Privacy Rule and the FTC Act. The Privacy Rule, among other things, requires financial institutions to disclose accurately the manner in which they safeguard customer information. The FTC Act prohibits unfair or deceptive practices.

Posted By: Ralph Roberts @ 8:10 pm | | Comments (1) | Trackback |
Filed under: FTC,Title Insurance

February 6, 2006

FlippingFrenzy.Com Joins National Organizations in Marking Eighth Annual National Consumer Protection Week

I’m pleased to announce that has joined a group of federal, state, and local government agencies and national consumer advocacy organizations to launch the 8th Annual National Consumer Protection Week (NCPW), February 5-11, 2006. NCPW empowers consumers by highlighting current consumer protection and education efforts in the fight against fraud in communities across the United States and elsewhere.

According to a recent survey by the Federal Trade Commission (FTC), nearly 25 million Americans–a whopping 11.2 percent of the adult population–experiences consumer fraud each and every year, and if you’re involved in a real estate transaction, the percentage might even be higher than that. If you’re interested in boosting your marketplace savvy, I encourage you to visit, where you can take part in the Grand Scam Challenge.

Consumer protection is the name of the game. When your money’s at stake, you want a grand slam, not a grand scam. Whether you’re investing in real estate, buying or selling products on an Internet auction, or looking for a home loan, it pays to know how to spot a scam. Tips on a wide range of these and other consumer protection issues are available at

National organizers of this year’s NCPW are the Federal Trade Commission (FTC), the Federal Citizen’s Information Center (FCIC), the U.S. Postal Service (USPS), the U.S. Postal Inspection Service (USPIS), the Federal Communications Commission (FCC), the National Association of Consumer Agency Administrators (NACAA), the National Consumers League (NCL), AARP, the Better Business Bureau (BBB), Call for Action, the Consumer Federation of America (CFA), the National Association of Attorneys General (NAAG), and the NATIONAL ASSOCIATION OF REALTORS (NAR). is proud to share the messages of this year’s National Consumer Protection Week campaign. We plan to continue to provide consumers and professionals alike with the tools they need to recognize and avoid real estate-related fraud and deception in the marketplace.

For more information about National Consumer Protection Week, visit

Posted By: Ralph Roberts @ 12:50 pm | | Comments Off on FlippingFrenzy.Com Joins National Organizations in Marking Eighth Annual National Consumer Protection Week | Trackback |
Filed under: FTC

January 26, 2006

Credit Reporting Company Settles Fraud Claim With FTC

Far West Credit, Inc., a Salt Lake City, UT-based company that creates consumer credit reports for use by mortgage industry professionals, has agreed to pay a $120,000.00 civil fine to settle Federal Trade Commission (FTC) charges that it recently violated the Fair Credit Reporting Act and the FTC Act. Far West Credit, which now operates as LandAmerica Lender Services, was purchased in February of 2004 by Info1 Holding Company, Inc., a subsidiary of LandAmerica Financial Group, Inc. (NYSE: LFG).

Background: Far West Credit/LandAmerica Lender Services buys individual consumer credit reports from all of the major credit reporting agencies, and then merges the reporting agencies information about a particular consumer into one all-encompassing report that it provides to mortgage lenders. According to the FTC, if there is insufficient information about a particular consumer’s credit worthiness from the major credit reporting agencies, Far West/LandAmerica Lender Services attempts to collect ‘additional information’ to demonstrate the consumer’s credit worthiness. That ‘additional information,’ which comes from cable companies, utilities, rent-to-own businesses, and insurance companies–all of whom do not report on a normal basis to the credit bureaus–is added by Far West/LandAmerica Lender Services to reports they prepare for their mortgage industry-related clients.

At issue with the FTC was this: Far West/LandAmerica Lender Services provided erroneous consumer reports to Keystone Mortgage and Investment Company, Inc., a Phoenix, AZ-based home lender, which in turn approved consumer mortgage loans insured by the Fair Housing Administration (FHA) of the U. S. Department of Housing and Urban Development, and that otherwise would not have been approved.

Terms of the Settlement: In addition to paying the $120,000.00 civil fine, Far West now has to have in place reasonable procedures to assure the maximum possible accuracy of information in the consumer reports it prepares, and must adhere to strict record keeping and reporting requirements that allow the FTC to monitor compliance.

Commentary: Here’s what’s really interesting about this case. Keystone had an interest in making the loans. So much so that Keystone’s own employees provided documentation of borrowers’ credit accounts to Far West/LandAmerica Lender Services to be used in creating consumer reports for those borrowers (Note that Far West/LandAmerica Lender Services didn’t even bother to gather the information itself… rather, it relied on its own customer–Keystone–to gather the information for them… boy, does anyone else see a massive conflict of interest here). Anyway, the FTC charges that the information provided by Keystone’s employees was not verified by Far West/LandAmerica Lender Services, and that Keystone of course provided false information for many of its customers. For example, according to the FTC, in many cases, Keystone provided documentation about accounts with utility and cable companies that didn’t even service the areas where the loan applicant lived.

And what about Keystone Mortgage and Investment Company? Well, according to an article that ran in the January 18th edition of the Salt Lake Tribune, Keystone Mortgage and Investment was audited last year by HUD, who found a pattern of fraudulent loans at the Phoenix-based company. A HUD spokesman told the Tribune that HUD is “unable to disclose anything about any actions HUD has taken against Keystone,” a company which is now apparently no longer in business.

It’s clear from the Far West/LandAmerica Lender Services FTC settlement that real estate-related fraud comes in many shapes and sizes. Long gone are the days when it was just the consumer who tried to get something past their mortgage lender. More and more we’re seeing mortgage industry professionals, i.e., the Keystone’s of the world, and their vendors, i.e., the Far West/LandAmerica Lender Services types, conspiring to beef up consumer credit scores. The problem of course is that for every one FTC settlement like Far West/LandAmerica Lender Services’, there are thousands of other instances where something similar is happening but no one seems to care enough to stop it.

Always remember and don’t ever forget, committing real estate fraud is no accident, and neither should stopping it!

Posted By: Ralph Roberts @ 7:05 am | | Comments (1) | Trackback |
Filed under: Credit Reports,FTC