Mark Winston Griffith
Mounting A Surge in the War Against Foreclosure Predators
This entry is cross-posted on Huffington Post
Every time I'm in public settings and talk about the need for regulation and the reform of the financial services industry, I caution that, like rat poison that leads to poison-resistant rats, implementing stronger rules around the financial services sector eventually leads to regulation-resistant scammers.
But one of the most frightening aspects of the range of real estate scams and mortgage abuse that led to many of the foreclosures around the country is that so many of the high pressure tactics and high priced products were legal. While there was certainly enough fraud and trickery to go around, knowingly making an unaffordable mortgage was, for the most part, kosher under the law.
The New York Times editorial page today commented on one of the inevitable outcomes of the foreclosure crisis: Predatory loan-modification companies that find desperate homeowners looking to survive their mortgages, and then charge them unconscionable fees or loan percentage points to do what is offered for free by non-profit organizations. As the Times, also noted, while this practice is immoral, it's legal in an industry that is largely unregulated.
The Times concluded that "nonprofit organizations need to be more creative and assertive to out-maneuver the predators."
While there is certainly a lot of room for improvement among nonprofits doing foreclosure prevention, this observation made by the Times is like blaming the troops in Iraq for not policing enough territory. The inadequacy lies not with our frontline army, but with the political will and resources necessary to address the problem.
First of all, literally millions of people, each of them in a unique state of crisis, are currently delinquent on their mortgages throughout the country, with millions more to follow over the next couple of years. Each of these people, whether they can be ultimately helped or not, potentially require hours of counseling and intervention.
Talk to any legitimate nonprofit foreclosure prevention counselor or lawyer and you will find a person overwhelmed by the scale of foreclosures, and outgunned by the scammers who helped put homeowners in that situation in the first place – unscrupulous brokers; predatory lenders; so-called foreclosure rescue specialists that literally steal people's deeds; "one stop shops" that collude to sell crumbling, over appraised, unaffordable, over-leveraged houses; and countless variations on these themes. With the hundreds of billions of dollars in house equity that was generated through the housing bubble there were armies of pirates and bottom feeders that assembled to cash in on it and strip it from people.
As Sheila Bair, chair of the FDIC, said, we need a national solution to the national foreclosure crisis. We need not only more money and resources put towards nonprofit foreclosure prevention, but a national public policy of mortgage modification that would help make loan-modification scammers irrelevant.