Kamala Harris - For California Attorney General 2010

DA Harris Continues Crack Down On Mortgage Scams

DA HARRIS CONTINUES CRACK DOWN ON MORTGAGE SCAMS

Joins City Leaders to Introduce Legislation to Regulate Loan Modification Consultants

District Attorney Kamala D. Harris and Assessor-Recorder Phil Ting have initiated legislation being introduced today by Supervisors David Campos and Sophie Maxwell to put an end to loan modification scams in San Francisco.

The Board of Supervisors ordinance would require a written contract outlining proposed services, prohibit loan modification consultants from collecting a fee before helping a homeowner obtain a favorable loan modification, and provide for enforcement with criminal penalties and a private cause of action for aggrieved homeowners.

“By introducing this measure San Francisco is showing leadership to stop a growing problem that is plaguing families across our City and throughout our state,” said District Attorney Kamala D. Harris.

“Recently we have seen an unprecedented number of San Francisco residents struggling to make their mortgage payments,” said Assessor-Recorder Phil Ting. “We need to make sure these homeowners are protected from unscrupulous mortgage consultants who prey on them and leave them worse off,” he said. Between 2006 and 2008, Ting’s office recorded a 121 percent increase in the number of Notices of Defaults in San Francisco. The number of foreclosures increased even more dramatically by 723 percent during that same time period.

“Corrupt mortgage modification consultants are preying on desperate homeowners by falsely promising to help them modify the terms of their mortgages,” explained Supervisor David Campos. “We are working to avoid more San Francisco residents from becoming victims of these scams.”

The San Francisco legislation would require consultants to provide homeowners with a written contract describing the mortgage modification services to be provided before initiating those services. It would also mandate that the modified loan provide a tangible

benefit for the homeowner – either a monthly loan payment reduction of at least 20 percent for a minimum of five years, or a monthly payment for housing expenses that does not exceed 31 percent of the owner’s monthly gross income for a minimum of five years.

“This legislation is extremely important because it gives borrowers more information about their options,” said Supervisor Sophie Maxwell.

The Ordinance makes homeowners aware that they can obtain the same loan modification services free of charge from HUD-certified nonprofit organizations.

The initiation of this legislation is part of DA Harris’ ongoing effort to deal with the fallout of the current economic downturn plaguing families who are now in danger of losing their homes.

In April 2009 DA Harris launched a three-pronged initiative to combat the growing problem of mortgage and financial fraud. The strategy included public education and outreach, legislative advocacy and prosecution.

Partnering with Assessor-Recorder Phil Ting, DA Harris has taken important information on free HUD-endorsed community organizations where consumers can get free counseling and assistance on how to save their homes from foreclosure.

In April and May of this year, Supervisors Sophie Maxwell and John Avalos joined DA Harris and Assessor-Recorder Ting at public education events held in Bayview Hunter Point and the Excelsior neighborhood where residents were given critical information on how to protect themselves from mortgage fraud scams and other financial crimes. The areas were selected because residents in the Bayview Hunters Point and Excelsior neighborhoods have been particularly hard hit by the foreclosure crisis. In fact, Bayview Hunters Point has the highest foreclosure rate in San Francisco.

Currently, the California State Legislature is considering several bills that would enhance penalties for mortgage fraud and regulate mortgage modification consultants. SB 239 (Pavely) seeks to amend the Penal Code to create a dedicated felony mortgage fraud statute, with enhanced punishment and greater investigatory tools for law enforcement. SB 94 (Calderon) prohibits consultants claiming to help consumers obtain a loan modification from receiving up-front payment for their services unless they are a licensed real estate broker.

“Our legislation goes further by stipulating that mortgage modifications must have a tangible benefit for the homeowner. It also incorporates stiff consequences for violating the law,” explained Supervisor Campos.

Mortgage modification consultants that violate the proposed San Francisco law would be subject to criminal penalties and a private cause of action by the homeowner.

“Educating the public on how to protect themselves from paying for services they can obtain elsewhere for free is only half the battle,” said District Attorney Kamala D. Harris. “We need to make sure that there are real penalties in place for opportunists who prey on homeowners in their darkest hours.”

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