Stop enabling scammers!
How the Feds enable scam artists (and how frustrated victims react)

By Kevin Horrigan (khorrigan@post-dispatch.com), ST. LOUIS POST-DISPATCH, 11/04/2009
http://www.statesman.com/search/content/editorial/stories/2009/11/01/1104horrigan_edit.html

In Glendale, Calif., three men and two women were arrested and charged with beating, torturing and robbing two self-styled "mortgage modification specialists" in an attack at a real estate office on Oct. 20.

Authorities said the victims, Lamond Dean and Luis Garcia, had taken money from two of their attackers, Mary Ann Parmelee and Daniel Weston, both 52, in return for promising to keep their home out of foreclosure. But when the couple got tired of excuses and lack of results, they allegedly rounded up help and took matters into their own hands. Police said a handgun and "wooden knuckles" were used in the attack.

Now, I'm not saying I condone what Parmelee, Weston and their accomplices are charged with doing. Nor am I condoning wooden knuckles (like brass, only cheaper, easier to smuggle onto a plane and slightly less destructive) possession, which is against the law in California. I'm only saying I understand the impulse.

HOT: We've seen many Texas homeowners who are just as furious at builders who cheated them or politicians compliant by passing laws that enable and encourage such bad behavior. Being out of a job or forced out of your home by mold or foreclosure adds the mix. Frustrated homeowners who have lost their largest investment and much of their sanity sometimes do irrational things. They protest in public, launch complaint websites, and tell the world about their seriously defective homes, even though doing so may limit their ability to sell or expose them to Libel & Slander suits. We've not seen homeowner violence ... YET ... but we consider that a strong possibility unless the laws are changed to protect them. It's that bad.

Since December 2007, when the recession officially started, it's been boom times for scams, cons, frauds, flimflams, hustles, rackets and rip-off artists. They've got Web sites and billboards. They advertise on TV and radio and in the paper. The mortgage modification scam is one of the most popular.

A guy — very often the same guy who in 2005 and 2006 was selling subprime mortgages to people who couldn't afford them — will set himself as a mortgage consultant. He'll send you an official-looking letter — sometimes it will even have your bank's return address on the envelope — or run a TV commercial with photos of the White House and footage of President Barack Obama. The promise, implied or explicit, is that the guy will get you into the federal mortgage modification program. You pay him a couple of thousand bucks up front, or sign some innocent-looking papers, and maybe the guy makes a couple of phone calls. Maybe he does nothing at all. When you go to track him down, unfortunately, he's in a meeting.

How these people sleep at night, I have no idea. A guy with a gun knocks over a 7-Eleven for a couple of hundred bucks, he gets an overworked public defender who maybe pleads him down to five years in prison. A guy with a color printer and a bulk-mail permit can make a thousand times that much, giving him plenty of money for a good lawyer in the unlikely event that he's caught.

HOT: As one of our homeowners puts it, "Authorities go after the shop lifter, robber, burglar, or car thief and prosecute on criminal charges; but they don't go after the builder who takes your money and doesn't deliver. They instead call that a 'contract dispute' and send you to binding arbitration, where even if you win a judgement, there's little chance of collecting. Builders are too well schooled in hiding their assets in their personal homestead, in properties belonging to family members, and in Limited Liability Partnerships that they establish and shut down at will."

I got one of these phony letters last week. Unlike a lot of people, I have a job that allows me to call up the state attorney general and get him to come to the phone. Missouri Attorney General Chris Koster was one of the first state attorneys general to get on the scams, and he sits on a state-federal task force on the problem.

Koster said that as of last Wednesday, his office had received 191 complaints about mortgage-modification scams this year. That's more than twice the number the attorney general's office handled in 2007 and 2008 combined. So far, Koster's office has filed "seven or eight" cases, with a similar number under review.

The cases are hard to make, particularly in criminal courts, and particularly if you take them federal. The FBI can handle only the biggest of the cases, and it wants evidence that at least $1 million has been bilked, Koster said.

To make a criminal case, money needs to have changed hands and paperwork has to exist documenting what promises were made. The sharpies fuzz up the paperwork. Memories of who said what to whom may be vague when the case finally gets to court.

You keep it under a million bucks, fuzz up the paperwork and play hard to get, odds are you get away with it. Doug Ommen, who heads Koster's consumer protection division, quoted one federal regulator as saying, "We'll never get through all these leads."

The federal government made it easy for the scammers. The Obama administration's Home Affordable Mortgage Program was painfully slow to ramp up, though this month it announced it was on target for reaching its goal of helping 3 million to 4 million homeowners. So far, it has helped 500,000 families.

When Wall Street needed help in September 2008, it was done in a weekend. When homeowners need help, it takes eight months to ramp up. Some lenders, who rolled mortgages into pools and sold them in pieces as mortgage-backed securities, now claim it's hard to refinance them because they can't tell who owns them.

Now, says Elizabeth Warren, head of the Congressional Oversight Panel for TARP funds, there's a new need: help for those who've lost their jobs and discover their conventional loans aren't eligible for the modification program.

Here's an idea: If bankers are so valuable that banks have to pay them exorbitant bonuses so they won't go somewhere else, use legislative wooden knuckles on them. Tell them the have to work out all the mortgages before they get paid. You can bet it won't take eight months.

READER COMMENTS:

CommonCents: 
This is great commentary and I concur with many of your arguments, however you missed a key point. In many instances the government IS the scam artist. You opine that greedy creditors were tricking the unsuspecting into buying homes they couldn't afford. Uh, yeah, that would be Fannie Mae and Freddie Mac, backed by the full force of the federal government and the Community Reinvestment Act. This was primarily responsible for the housing crisis with the attendant fallout that also effected millions who actually could afford their mortgages. That would be except for some key politicians who received preferential loans from at least one of those greedy lenders. So, the government not only "encouraged" the lenders, it got in bed with them for financial and political gain. Sounds like the typical scam artist to me. They should go to jail along with those vile people your commentary targets. (Haven't really read too much in the Post-Dispatch about governments huge role in the housing collapse - sure there are some investigative reporters on it somewhere - anywhere?). Maybe the Post-Dispatch could start using wooden knuckles on those responsible and still in office continuing to do damage and putting us all at financial risk. For the most part though you're insights on this issue are spot on.

CrashTest:
"When Wall Street needed help in September 2008, it was done in a weekend. When homeowners need help, it takes eight months..." The NYSE's portico giant American flag should be replaced with a giant bankrupt Monopoly Man poster.

Celtic Warrior:
The mortgage programs and the way the mortgages are sold where created by the big banks and big government. So many retail loan officers came from the ranks of pizza delivery boys and used car salesmen that it was scary. I work in the mortgage business, I have a degree in Finance and I deal with millions of dollars. A mortgage, for most people is the biggest investment they will ever make but the people originating the loans don't have to be certified or licensed. In our society we need a license for everything. Why aren't loan officers tested and certified, it's crazy. As for the insane lending guidelines created by big banks and insured by AIG or the Fed, they should be taken out and hung by their fingernails. The secondary market and the derivative trading style of the mortgage backed securities had little or no oversight. And now that the *&^%$ has hit the fan, the people who masterminded this mess are the recipients of the bailout money. Somebody explain to me how they got away with this. Somebody explain to me why these CEO's and their army of VP's are getting astronomical salaries. Somebody tell me how this is free market capitalism. It appears to me to be nothing more than an Ivy league inspired and government backed Ponzi scheme.

A CENTRIST:
I never agree with Horrigan on anything - but looks like he has finally woken up from his Obamaoslumber. The stimulus failure is going to be Obamao's Katrina even though the media won't admit it. They have been an abject failure of executing anything and now they are going to take over healthcare. Perhaps Horrigan is finally realizing that you don't just vote for someone based on the color of their skin (or a Democrat in the case of Gov. Blago) especially when the candidate comes from the thug Chicago mob group. Doesn't take a genius to figure this out. Some people just take a little longer.

JamesJ:
The housing mortgage scams and cons are just the tip of the iceberg. The cons, scams, and corrupt insider deals in the commercial loan market are run by slick lawyers who have deep connections in the civil courts and no compunction about using their positions to threaten witnesses, to cover up false allegations, etc. Their scams destroy 100s of jobs, bankrupt small businesses, and can put smaller banks under, all because of greed, ego, and personal power. One never sees the feds go after these crooks, because they have so much power, connection, and access in the courts. Even court appointees refuse to speak out when they see business people being cheated and destroyed by these crooks.

Michael Hill:
How about going after American Equity Mortgage, Vincent Mortgage, Golden Oak Lending and Homestead Financial Mortgage. These outfits are predatory lenders of the worst class.