WASHINGTON — Federal regulators, taking aim at a common tactic used in mortgage frauds, will look at a nationwide ban on companies' charging upfront fees for helping homeowners modify loans to avoid foreclosures.
The move comes as federal and state officials plan to expand a crackdown on mortgage-related scams to other schemes that prey on debt-ridden consumers desperate to stay financially afloat during the recession.
"Working together, we can send a clear and straightforward message: If you perpetrate mortgage fraud . . . we will find you and we will charge you and we will put you in jail," U.S. Atty. Gen. Eric H. Holder Jr. said Thursday as top federal officials met with attorneys general from 12 states to coordinate those efforts.
Federal officials have been working with state attorneys general nationwide since April to ferret out fraudulent mortgage modification offers. In July, for example, California Atty. Gen. Jerry Brown filed suit against 21 people and 14 companies allegedly linked to loan modification and foreclosure-prevention scams, part of a nationwide sweep known as Operation Loan Lies.
At the end of July, the FBI had more than 2,600 pending mortgage fraud cases under investigation, many in conjunction with state officials after the creation of the multi-agency effort in the spring, Holder said. Now, federal officials want to expand that effort to other consumer debt scams, said Treasury Secretary Timothy F. Geithner.
"You need to do it on a coordinated basis because these guys don't respect state borders, don't respect national borders," Geithner said.
After the meeting, Jon Leibowitz, chairman of the Federal Trade Commission, said the agency might impose a nationwide ban later this year on upfront fees for mortgage modifications.
With foreclosures at record levels, the only way many consumers can stay in their homes is by reducing their mortgage payments. As often happens during economic downturns, scammers have tried to cash in on that desperation, this time by asking for large upfront payments for help seeking mortgage modifications.
"People are paying upfront and then have no real guarantee that the modification service will actually modify the loan," said Pedro Morillas, consumer advocate for the California Public Interest Research Group, which supports a fee ban.
"There are just a lot of bad actors out there, and it's going to take at the very least a statewide effort [to stop them]. And nationally, an effort like this would be great," he said.
