Complaints of mortgage fraud, foreclosure scams are on the rise, consumer agency says

By FEDERICA NARANCIO, McClatchy News Service

Last update: July 30, 2008 - 10:53 PM

WASHINGTON - Frauds aimed at people in financial trouble rose sharply last year, said a consumer agency survey released Wednesday.

"Mortgage fraud and foreclosure scams are among the fastest-growing and the worst complaints," said Susan Grant, director of consumer protection at the Consumer Federation of America, which issued the findings.

In mortgage fraud, a supposed financial adviser charges fees to refinance home debt at a rate that's said to be favorable but isn't. In a foreclosure scam, high fees and bad advice leave desperate homeowners worse off.

Also surging, Grant said, are fake-check scams. In such a scam, the scammer demands cash back from an overpayment with what turns out to be a bad check. Or the scammer writes bad checks to someone who's paid a commission to cash them.

Grant's group, which is an alliance of public and private consumer-counseling agencies, joined two other consumer associations to analyze complaint trends in 25 states.

Among the 10 top complaints they found were some traditional ones: Internet sales fraud, scams involving car sales, incomplete or poorly done construction work and sleazy credit and debt-collection methods. Fake checks were the big surprise, Grant said.

"I even received a call from the public defender's office because they've seen a rise in the number of people they are defending as a result of fake-check scams," said Pastor Herrera, the director of the Los Angeles County Department of Consumer Affairs.

To respond to them, Grant said, the Consumer Federation of America created a "fake check" working group with representatives from agencies, banks and credit unions to educate consumers and train financial institutions.

Older, younger and poor people and those with disabilities are the most affected by the scams, the survey said.

IT AFFECTS YOU IF ...

You don't itemize: Homeowners who do not itemize their income taxes can deduct $500 to $1,000 from 2008 federal taxes.

You are a first-time buyer: Anyone buying a first home between April 9, 2008, and July 1, 2009, will receive up to $7,500 in federal income tax credits. However, the tax credit must be repaid, either over 15 years or when the home is sold.

You hit a 31% ratio: Homeowners struggling to make payments on high-interest mortgages can contact their banks and transform their loans into government-backed, 30-year fixed-rate mortgages. To qualify, homeowners must have a mortgage debt-to-income ratio greater than 31 percent. To see if you qualify, multiply your gross monthly salary by 31 percent. For example, if you earn $75,000 a year, you must owe a monthly payment of at least $1,938.

You live in a neighborhood hit by foreclosures: It provides $3.9 billion in grants for governments in the hardest-hit areas to buy and fix foreclosed property.

You live in an expensive city: It permanently increases to $625,500 the size of home loans in high-cost areas that Fannie Mae and Freddie Mac can buy and that the FHA can insure. It would otherwise have reverted to $417,000 for Fannie and Freddie and $362,790 for the FHA by year's end.

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