WASHINGTON — The Justice Department is gearing up to probe potential scams targeting distressed San Joaquin Valley homeowners.
On Friday, Rep. Dennis Cardoza, D-Merced, urged Attorney General Michael Mukasey to investigate mortgage-reduction schemes now being marketed through the Valley. For an upfront fee, homeowners are being told, their monthly mortgage payments can be renegotiated.
At best, the homeowners may end up paying for work that's available for free. At worst, they'll pay for work that isn't done at all.
"People need to be very careful who they send their money to," Cardoza cautioned Friday.
The mortgage-reduction schemes are just one of the housing-related problems now confronting law enforcement officials. As the market melts down, the investigations are heating up. Two weeks ago, Modesto-based FBI agents assured Cardoza's office they were forming a task force to zero in on mortgage-related frauds.
In his letter Friday, Cardoza told Mukasey that it was "imperative" that law enforcement authorities "crack down on these foreclosure scams quickly and comprehensively." He called San Joaquin Valley residents "particularly vulnerable" because of the region's foreclosure crisis.
The questionable solicitations come in different ways.
Phone calls offering mortgage negotiation services have been ringing through the San Joaquin Valley for several months. Sonia Neal, a Realtor and volunteer counselor with the Community Housing Council of Fresno, added that sometimes "they will even just show up at the door."
Official-looking letters are arriving in Valley mailboxes, some citing congressional bill numbers or phone numbers for a "loss mitigation department." And on Thursday, in Modesto, some homeowners attended a workshop in which they were asked to pay $3,500 for getting their mortgage woes resolved.
Typically, the companies are offering to renegotiate the mortgage in exchange for an up-front fee amounting to one month's mortgage payment, or more.
"We called some of these companies back; they don't even have Web sites, and they seem fly-by-night," Cardoza said. "When they found out we were a congressional office, they stopped responding."
Even before Cardoza's encouragement, federal investigators began pouring more resources into mortgage-related cases. The FBI reports having 1,569 pending mortgage fraud investigations open as of August; the number of new mortgage-fraud causes opened annually doubled between 2003 and 2007.
The FBI now has 42 separate mortgage fraud task forces and working groups currently established nationwide. A Justice Department official could not be reached to comment Friday afternoon.
For the scammers and investigators alike, the Valley is a target-rich environment. Stockton, Modesto and Merced top the foreclosure rankings among cities nationwide, and Fresno is not far behind. As house prices have dropped and adjustable-rate mortgages have risen, more homeowners have found themselves on thin ice.
Neal noted a number of companies offering so-called "loan modification" services have consequently popped up throughout California. While she acknowledged "there are some legitimate" companies offering the loan-modification services, she joined Cardoza in stressing caution.
"Some people will get desperate and pay the money," Neal said, "and then nothing happens."
Some of the scams appear to be an unexpected byproduct of the Hope for Homeowners Act passed by Congress earlier this year. The bill expands the ability of eligible borrowers to get better terms. For instance, homeowners must be spending more than 31 percent of their monthly incomes on their mortgages. Distressed homeowners who heard about the bill, but don't know its details, could be particularly vulnerable to fleecing.
The non-profit Community Housing Council of Fresno and the affiliated group No Homeowner Left Behind will do for free what the loan-modification companies do for money. The non-profit counselors will help homeowners prepare applications for modified mortgages; the lenders are not obliged to change the terms, but sometimes they do.
The counselors further advise homeowners to be wary of businesses that call themselves a "mortgage consultant" or "foreclosure service," or businesses that contact people whose homes are listed for foreclosure, or that collect a fee before providing any mortgage-related service.
A foreclosure-prevention workshop, co-sponsored by Cardoza's office and No Homeowner Left Behind, will be held Saturday starting at 9 a.m. at the Stanislaus County Agriculture Center.