Homeownership Preservation: Federal Efforts to Combat Foreclosure Rescue Schemes Are Under Way, but Improved Planning Elements Could Enhance Progress
Published: 2010-07-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: One of the most devastating aspects of the current financial crisis for homeowners is the prospect of losing their homes to foreclosure, and many homeowners have fallen victim to foreclosure rescue and loan modification schemes. In 2009, the administration created the Financial Fraud Enforcement Task Force (FFETF), which is led by the Department of Justice (DOJ), to combat these and other financial crimes. This report examines (1) the nature and prevalence of these schemes, (2) federal efforts coordinated to combat these schemes and other major efforts, and (3) factors that may affect federal efforts' success in combating these schemes. To address these objectives, GAO obtained information from federal agencies participating in the FFETF and interviewed representatives of five states with high exposure to potential foreclosures and nonprofit organizations undertaking related activities.
section_title: What GAO Found
paragraphs: Although data that would establish the prevalence of foreclosure rescue and loan modification schemes are limited, officials told GAO that these schemes can take several forms--the most active scheme is one in which individuals or companies charge a fee for services not rendered. Agency and nonprofit officials said that the perpetrators of these schemes are likely to be former mortgage industry employees, professional scam artists, and unethical attorneys and that the range of potential victims is wide. Law enforcement officials said that the nature of the schemes makes them difficult to combat because they can easily be conducted by Internet or across state lines. While law enforcement agencies and nonprofits have information, such as research studies and consumer complaints, that supports their belief that these schemes are widespread, there are no nationwide data that can reliably be used to describe their prevalence. Collaborative federal law enforcement efforts and other coordinated efforts involving federal and private organizations are under way to combat foreclosure rescue and loan modification schemes. The FFETF was established in November 2009 to strengthen the efforts of federal, state, and local agencies to investigate and prosecute a variety of financial crimes, including foreclosure rescue and loan modification schemes. Prior to the FFETF, the administration announced a multiagency effort to combat these schemes in April 2009, for which agencies, notably the Financial Crimes Enforcement Network and the Federal Trade Commission, took supporting actions. The FFETF's Mortgage Fraud Working Group, which has primary responsibility for coordinating activities related to these schemes, has focused on facilitating communication and exchanging information among law enforcement agencies by sponsoring training sessions and conferences. In addition to the FFETF, there are other major coordinated efforts aimed at combating these schemes, such as a public-private effort that focuses primarily on consumer education and outreach. Several factors may affect federal efforts to combat foreclosure rescue and loan modification schemes, and lack of a clear, long-term strategy could limit the FFETF's effectiveness. Key factors affecting federal success in combating these schemes include educating consumers about them and coordinating federal and state law enforcement efforts. The Mortgage Fraud Working Group has created an action plan that partly addresses these factors but does not fully incorporate certain key practices to enhance and sustain interagency collaboration. In particular, the plan largely focuses on short-term strategies, does not clearly identify members' roles and responsibilities, and does not clearly identify performance indicators that would allow it to measure progress over time. In addition, the plan outlines strategies for addressing mortgage fraud as a whole and identifies few specific approaches to combating foreclosure schemes. Without long-term strategies and performance measures specific to foreclosure schemes, the working group may be limited in its ability to combat these schemes.
section_title: What GAO Recommends
paragraphs: GAO is recommending that the U.S. Attorney General direct DOJ to develop clear, long-term strategies and performance measures that DOJ can use to evaluate its progress toward combating mortgage fraud, and consider developing strategies specific to foreclosure rescue schemes. DOJ concurred with these recommendations.

section_title: Letter
paragraphs: One of the most devastating aspects of the current foreclosure crisis is the  prospect that homeowners who cannot afford their mortgage payments  will lose their homes to foreclosure. The dramatic increase in the number  of homes entering foreclosure since 2005—a record high of over 2 million  in the foreclosure inventory in 2009—has presented opportunities for  some individuals and companies to take advantage of homeowners  through schemes that promise but do not deliver relief from pending  foreclosures. These deceptive practices, which typically cost homeowners  thousands of dollars that they can ill afford to spend, are broadly referred  to as foreclosure rescue schemes. Loan modification schemes are a type of  foreclosure rescue scheme in which homeowners are steered away from  legitimate free sources of loan modification assistance, such as those  provided by both the federal government and private financial institutions.
The concern that homeowners seeking to save their homes from  foreclosure can become vulnerable to these schemes has attracted the  attention of consumer advocates, regulators, and law enforcement  agencies. In April 2009, four federal agencies—the Federal Trade  Commission (FTC) and the Departments of Justice (DOJ), the Treasury  (Treasury), and Housing and Urban Development (HUD)—and the Illinois  State Attorney General announced efforts to coordinate information and  resources across agencies to combat these schemes and educate  consumers. On November 17, 2009, in response to concerns about a broad  range of financial crimes relating to the current financial crisis and  economic recovery efforts, including foreclosure rescue schemes, the  President established the Financial Fraud Enforcement Task Force  (FFETF) under the leadership of the U.S. Attorney General to strengthen  the efforts of DOJ in conjunction with federal, state, and local agencies to  investigate and prosecute these crimes. In addition, other federal, state,  local, private, and nonprofit agencies have launched cooperative efforts to  reach out to consumers who have experienced foreclosure rescue and  loan modification schemes and to help others avoid these schemes.
In light of these concerns, as agreed with your offices, we examined   (1) what is known about the nature and prevalence of mortgage  foreclosure rescue and loan modification schemes, (2) the status and  scope of the federal government’s multiagency effort to combat these  schemes and other major efforts, and (3) the factors that may affect the  likelihood that federal efforts will succeed in combating these schemes.
To determine what is known about the nature and prevalence of mortgage  foreclosure rescue and loan modification schemes, we contacted  representatives of the four federal agencies—DOJ, FTC, Treasury, and  HUD—that were identified as participants in the initiative to combat these  schemes in press releases issued in April 2009. In addition, we contacted  representatives of five states that have high numbers of potential  foreclosures—Arizona, California, Florida, Illinois, and New York—and  national nonprofit organizations and other associations that we identified  as actively engaged in addressing these schemes to discuss the nature and  prevalence of the schemes. To identify the status and scope of the federal  government’s multiagency effort and other major efforts to combat these  schemes, we interviewed and obtained related documentation from the  FFETF’s leadership and Mortgage Fraud Working Group; the four federal  agencies that we have previously mentioned; and organizations sponsoring  major efforts in this area, including the members of the Loan Modification  Scam Prevention Network. To identify what factors may affect the  likelihood that federal efforts will succeed in combating these schemes,  we analyzed information from federal and state agencies and national  nonprofit organizations describing challenges to combating foreclosure  rescue and loan modification schemes. We also used our prior work on  practices that can help sustain collaboration among federal agencies to  assess FFETF planning efforts to date and the likelihood that its efforts  will succeed in combating these schemes. See appendix I for more  detailed information on the scope and methodology of the report.
We conducted this performance audit from September 2009 to July 2010 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: Background
paragraphs: The current foreclosure crisis has provided persons who may perpetrate  mortgage foreclosure rescue and loan modification schemes with  unprecedented opportunities to profit from homeowners desperate to save  their homes. In March 2010, we reported that national default and  foreclosure rates rose sharply from 2005 through 2009, to the highest level  in 29 years. The most recent data from the Mortgage Bankers Association,  which are for the first quarter of 2010, show that the number of home  loans with payments more than 60 days past due, and therefore potentially  facing foreclosure, is 2.7 million. As shown in figure 1, California and  Florida have the highest numbers of potential foreclosures. The  foreclosure process has several possible outcomes, but the homeowner  generally loses the property, typically because it is sold to repay the  outstanding debt or is repossessed by the lender.
In response to the rising number of defaults and foreclosures, the  administration announced the Making Home Affordable Program in  February 2009, which includes a number of programs intended to assist  homeowners facing potential foreclosure, including the Home Affordable  Modification Program (HAMP). Under HAMP, Treasury shares the cost of  reducing the borrower’s monthly mortgage payments with mortgage  holders and investors so that homeowners might realize a reduction in  their monthly mortgage payments. In addition to HAMP, there are other  foreclosure prevention programs aimed at providing assistance to  homeowners, including both governmental and private programs. For  example, the government sponsored enterprises (GSE) Fannie Mae and  Freddie Mac have their own loan modification programs. Refinances are  also available under the GSE Home Affordable Refinance Programs, and  the Federal Housing Administration’s (FHA) Hope for Homeowners  Program, which permits eligible homeowners to lower their monthly  mortgage payments by refinancing their mortgage loans into fixed-term  market rate loans. In addition, individual private financial institutions offer  their own proprietary loan modification programs for homeowners who do  not qualify for HAMP. Moreover, free counseling services, such as those  provided by HUD-certified counseling agencies, are available to  homeowners seeking to avoid foreclosure. One way that homeowners can  access these counseling services is by calling the Homeowner’s HOPE™  Hotline (1-888-995-HOPE), which is run by a nonprofit organization that  works with a coalition of governmental agencies, financial services  institutions, and other nonprofit groups to help homeowners struggling to  make their monthly mortgage payments.
A number of federal and state law enforcement agencies perform different  roles and use different legal authorities in their efforts to combat various  types of financial- and mortgage-related crimes, including protecting  consumers from foreclosure rescue and loan modification schemes (see  table 1). Within the federal government, FTC, the U.S. Postal Inspection  Service, and agencies within DOJ and Treasury all have key roles  regarding the investigation and prosecution of persons who have engaged  in these types of schemes. As we discuss later in this report, State  Attorneys General and regulatory agencies also play key roles in  combating these schemes.
section_title: Schemes Often Involve Fees for Services Not Rendered, and Although Data Are Limited, Federal and State Officials Consider Them to Be an Important Problem
paragraphs: Officials with whom we spoke described several deceptive practices  relating to foreclosure rescue and loan modification schemes that  victimize vulnerable homeowners. Most officials are currently concerned  with one particular loan modification scheme in which persons engaging  in a scheme to defraud homeowners charge a fee in advance (typically, a  fee of thousands of dollars) for the service of ensuring the modification of  their mortgage loan to a loan with lower monthly payments, but they do  not provide this service. Law enforcement officials reported that these  schemes are difficult to combat because persons engaging in such  schemes can start up or shut down their activities quickly and can do so  across state lines. Although data that can provide a reliable indicator of  prevalence are limited, information available to federal and state agencies  and nonprofit organizations, such as consumer complaints and the number  of enforcement actions, suggests that these schemes are a problem.
subsections: section_title: Methods, Persons Engaging in and Victims of Schemes Vary, Although Schemes Often Involve Fees Charged in Advance for Services Not Rendered
paragraphs: Many federal and state officials that we interviewed identified the  following two principal types of foreclosure rescue and loan modification  schemes perpetrated against consumers: advance-fee loan modification  schemes and sales-leaseback schemes. These officials more often pointed  to the advance-fee loan modification scheme as the type currently most  prevalent. These schemes are broadly described as follows:    Advance-fee loan modification schemes: Federal and state officials with  whom we have spoken, as well as nonprofit studies, reported that these  schemes take the form of a person charging a fee in advance to negotiate  someone’s mortgage with the mortgage lender, often with a money-back  guarantee, then providing little or no services and not refunding the fee. In  25 of the 28 enforcement actions that FTC brought in 2008 and 2009 on the  basis of foreclosure rescue and loan modification schemes, FTC alleged  that the defendants charged an advance fee for services that were not  performed. In addition, information that the Lawyers’ Committee for Civil  Rights Under Law (Lawyers’ Committee) provided to us indicated that as  of May 7, 2010, the average amount paid by homeowners for services they  reported that they did not receive is about $3,000. A National Community  Reinvestment Coalition—a nonprofit organization—study and an FTC  press release, also indicated that persons engaged in this type of scheme  may make misrepresentations to consumers regarding their ability to  obtain a loan modification, such as claiming high success rates or special  relationships with mortgage lenders. For example, 9 of FTC’s 28  enforcement actions alleged that the defendants misrepresented their  affiliation with the federal government, a mortgage servicer or lender, or a  nonprofit organization. In addition, as reported by FTC and evidenced by  research conducted by the National Community Reinvestment Coalition,  these schemes put homeowners in further jeopardy of losing their homes  because they were instructed not to pay their mortgage or not to talk with  the servicer, thereby increasing the likelihood that they would lose their  home to foreclosure. See figure 1 for an illustration of how this scheme  r an illustration of how this scheme  may work.  may work.
Sales-leaseback schemes: An FTC official, state officials from three of our  five case-study states, and two recent nonprofit studies also cited another  type of foreclosure rescue scheme. The names used to describe the  schemes vary, and the methods vary as well. Federal agencies and  nonprofit sources explain that these schemes generally involve someone  convincing a homeowner at risk of foreclosure to transfer the deed of their  home to them as a means of saving the home from foreclosure. The person  then has control of the property and can make money by either taking out  a second loan on the home or selling the home. According to these  sources, the original homeowner is permitted to lease the home from the  person engaging in the scheme and told that he or she may buy the  property back in the future. However, the person engaging in the scheme  may have no intention of selling the property back to the original  homeowner and may make the terms of the buy-back agreement too  difficult for the original owner to comply with, thereby resulting in the  homeowner losing the property. FTC and state officials believe that these  schemes were more predominant before the decline in housing prices  because higher housing prices provided more equity for persons engaging  in the scheme to take from a homeowner, and the loans needed to  refinance the homes were more readily available.
Information provided by federal and state officials indicates that newer  schemes have been emerging. For example, a March 2010 FTC consumer  alert warned consumers to watch out for a forensic mortgage loan audit  scam, which it explained as a “new twist on foreclosure rescue fraud.” In  this scheme, someone charges a fee to conduct an “audit” intended to find  regulatory violations in the mortgage loan origination in order to allow the  homeowner to use the “audit” results to avoid foreclosure, accelerate the  loan modification process, reduce the loan principal, or even cancel the  loan. According to the FTC consumer alert, there is no evidence that  forensic mortgage loan audits will help borrowers obtain a loan  modification or any other foreclosure relief, even if the audits are  conducted by a licensed, legitimate, and trained auditor; mortgage  professional; or lawyer. Similarly, in May 2010, based on information  provided in Suspicious Activity Reports (SAR), FinCEN described  variations of advance-fee scams in which a person promises to eliminate a  homeowner’s mortgage or other debt on the premise that the debts were  illegal or the government would assume responsibility.
Federal and state officials and representatives of nonprofit organizations  told us that persons who have conducted foreclosure rescue schemes  include former mortgage industry professionals who had been involved in  the subprime market; career scam-artists; and licensed professionals, such  as attorneys who allow their names or licenses to be used by those  perpetrating schemes to add credibility to their promises to provide relief.  Federal and state officials and nonprofit representatives explained that  former mortgage industry professionals who had been involved in  subprime lending became involved in these schemes because their  businesses had slowed due to the foreclosure crisis and they were looking  for new sources of income. In addition, Federal Bureau of Investigation  (FBI) officials noted that career scam-artists gravitate toward these types  of schemes whenever the federal government creates programs to assist  people in desperate circumstances, such as the programs the government  began promoting in early 2009, because scam-artists can claim that they  are affiliated with a federal program as a way to gain people’s trust. As  indicated by an official from the Florida State Attorney General’s office,  because of coverage in the news media and other public sources, federal  programs provide scam-artists with a “new script” with which they can  attract consumers. Officials from four of our five case-study states also  said that attorneys can provide cover for third parties that perpetrate these  schemes, particularly in states that have laws that prohibit firms from  charging advance fees but have exemptions for licensed attorneys. Most  notably, the State Bar of California, according to one if its officials, created  an internal task force to investigate consumer complaints related to loan  modification companies in California because complaints had increased  significantly between December 2008 and March 2009 regarding attorney  involvement in loan modification schemes. During this period, according  to the official, companies recruited attorneys to circumvent the state law  prohibiting advance fees.
Although federal and state officials lack comprehensive information on the  potential victims of these schemes, officials believe that potential victims  are likely to include anyone desperate to save their home from  foreclosure, regardless of their economic status or demographic  characteristics. For example, many federal and state officials said that  persons engaging in these schemes will target anyone having difficulty in  paying their mortgage loan, and an FTC official and officials from two of  our case-study states said that even wealthy individuals or professionals  may become victims of these schemes if they are unable to pay their  mortgage. However, officials from three of our case-study states also said  that they were specifically aware of schemes in which a particular ethnic  or religious community was targeted. As explained by one state official  and a representative of a local housing nonprofit organization, in these  cases, persons engaged in the schemes gained the trust of those within the  community because they spoke the same language as the homeowners or  had emigrated from the same country.
section_title: Nature of These Schemes Makes Them Difficult to Combat, and Legal Approaches Vary by State
paragraphs: State law enforcement officials noted that these schemes are difficult to  combat because state law enforcement authorities are often unable to  locate the persons who committed the schemes or provide restitution to  the victims. Federal and state officials also said that loan modification  schemes in particular are difficult to combat because companies can easily  start up and shut down and can be run solely on the Internet. In addition,  as explained by California and Florida officials, persons engaging in the  schemes often run large-scale operations across state lines, using methods  similar to those of telemarketing schemes that allow them to solicit  customers nationwide. In these operations, a California state official said,  most of the employees work in sales, soliciting customers and obtaining  payments, while performing no work on behalf of the customers. Because  these schemes are operated across state lines, several state officials told  us, they are more difficult for state law enforcement to combat. Officials  said that pursuing out-of-state companies adds increased difficulties in  litigating and enforcing judgments for State Attorneys’ General offices  because they have no jurisdiction over companies being operated across  state lines.
In addition, legal restrictions and authorities vary by state in terms of what  are considered to be prohibited practices regarding these schemes. FTC  has proposed a rule that would, among other things, prohibit for-profit  companies from being paid until they provide the promised services. Four  of our case-study states—California, Florida, Illinois, and New York—have  passed specific laws prohibiting companies that provide these services  from collecting fees in advance, and officials from these states noted that  these laws have helped them to take action against perpetrators of these  schemes, although a Florida official said that these schemes persist  despite the existence of the law. They explained that the existence of  these laws generally allows them to cite a violation without having to  otherwise prove criminal intent, which they explained can be more  difficult to establish.
section_title: Although Data That Can Be Used to Describe the Prevalence of Schemes Are Limited, Some Information Suggests That Schemes Are an Important Problem
paragraphs: Federal law enforcement agencies with key roles in combating these  schemes—FTC, FBI, and the Executive Office for U.S. Attorneys  (EOUSA)—had limited information that could be used to describe their  prevalence, but most officials with whom we spoke considered these  schemes to be an important consumer protection issue. Of these three  agencies, only FTC had data directly pertaining to these schemes. While  this data does not serve as a precise indicator of prevalence, FTC officials  said that the number of enforcement actions they sponsored in 2008 and  2009 (i.e., 28), as well as the 71 warning letters they sent in response to  their 2009 investigation of related Internet advertising indicated to them  that these schemes pose a problem for consumers. In response to this  concern, FTC provided consumers with the option of identifying these  schemes on its 2009 Internet complaint form, but FTC officials stressed  that while these data indicated a problem, they could not be used as a  measure of prevalence for a number of reasons, one of which is that the  data were self-reported resulting in a nonstatistically valid sample that  cannot be used to predict the prevalence of the problem. FBI officials  told us that they considered these schemes to be a problem on the basis of  information received from their 56 field offices—50 percent of which  reported the schemes as prevalent and another 20 percent of which  identified them as emerging schemes—as well as their review of SARs that  FinCEN collects from financial institutions. However, they could not  identify the number of investigations they had undertaken, and FBI only  developed plans to modify its case support system to track this  information during the course of our investigation. Because the EOUSA  case management system does not differentiate among the different types  of mortgage fraud, no statistical information is available regarding the  number of cases involving foreclosure rescue schemes in U.S. Attorney’s  offices. However, some U.S. Attorneys in our five case-study states  provided anecdotal observations that support their belief that these  schemes are a problem.
While several law enforcement representatives, including those of FBI and  EOUSA, referred us to SARs as a potential indicator of prevalence,  FinCEN officials said that these reports had limited use for this purpose  due to the many variables associated with SAR filings. FinCEN reported  that analyses of SARs could increase law enforcement’s understanding of  the crime—for example, by identifying the techniques used by the persons  perpetrating the schemes—but FinCEN officials said that these analyses  were of limited usefulness for estimating prevalence. The officials noted  that the primary purpose of SARs is to provide information on known or  suspected violations of financial laws or regulations—such as those  prohibiting money laundering or credit card fraud, rather than, for  example, providing information on the specific types of businesses  involved. In addition, FinCEN analysts indicated that many of the activities  reported in SARs were anywhere from 12 to 18 months old, generally due  to a lack of awareness of wrongdoing on the part of the financial  institution at the time the activity occurred.
Similar to FTC, law enforcement officials from our five case-study states  told us that these schemes were a significant problem, based on the  number of enforcement actions their agencies have taken pursuant to  these schemes or on the number of consumer complaints they have  received. The California Department of Real Estate described these  schemes as the biggest consumer fraud it faced in 2009 and said that they  initiated over 2,000 investigations into potential loan modification schemes  in that year. The California State Attorney General’s office was pursuing 5  civil and 4 criminal cases as of June 2010, which the official with whom we  spoke considers to be a relatively high number for its office. Similarly, a  representative of the Florida State Attorney General’s office said that in  2009, mortgage foreclosure rescue scams were the most common category  of consumer complaint that his office received, although as of March 31,  2010, these complaints had fallen to second position. Representatives of  the Arizona, Florida, Illinois, and New York State Attorney General’s  offices similarly reported taking enforcement actions against mortgage  fraud cases in general, with foreclosure rescue cases sometimes  accounting for the majority of these actions. The representative of the  Illinois State Attorney General’s office noted that due to the number of  consumer calls related to these schemes, staff members provide responses  to general loan modification questions for callers in addition to handling  their law enforcement duties.
Representatives that we interviewed of nonprofit organizations involved in  housing or related issues (the Homeownership Preservation Foundation,  the Lawyers’ Committee, the National Community Reinvestment Coalition,  the National Consumer Law Center, and NeighborWorks America®)  likewise reported that they did not have data that could be used to reliably  describe the prevalence of the schemes, but that they consider them to be  a problem on the basis of research they have conducted or information  available to them. This information included the following:    Reports about potential schemes submitted to the Homeowner’s HOPE  Hotline: The Homeownership Preservation Foundation, which sponsors  the Homeowner’s HOPE Hotline, has tracked the number of times  consumers have reported that they believe they have been victims of  scams. These statistics indicate that from June 2009, when these statistics  were first kept, until May 9, 2010, about 10,500 callers reported their belief  that they had been scam victims. While these calls represent about   1 percent of callers to the hotline, the foundation believes they indicate a  national problem and in February 2010 dedicated a team to request  specific information about the callers’ experiences. Homeownership  Preservation Foundation representatives told us that this number likely  underestimates the number of callers to the hotline who may have been  scammed, because some callers may not realize that they have been  involved with a scam and therefore may not report it and the foundation  has not actively screened calls for possible victims of scams.
Mystery shopping by the National Community Reinvestment Coalition:  To address concerns about these schemes, in mid-2009, the National  Community Reinvestment Coalition used mystery shoppers—that is,  individuals who posed as borrowers delinquent in their mortgage  payments—to call national and local foreclosure prevention service  providers to ascertain the nature of their services. While this study did not  determine whether the assistance would actually have been provided, it  did identify practices that would have been very troubling to homeowners.  For example, in over 50 percent of the telephone calls, the service  providers advised the mystery shoppers not to pay their mortgage and  charged fees that ranged from $199 to $5,600 for different levels of  service.
The potential indicators of prevalence used by the agencies we contacted,  such as the number of consumer complaints and law enforcement actions,  all have limitations. As FTC noted, consumers can file complaints with any  number of federal or state agencies, which makes the complaints difficult  to aggregate. Furthermore, FTC noted that it does not have the resources  to validate the large number of self-reported complaints it receives each  year and these complaints may still only represent only a small portion of  potential schemes. Also, as explained by several law enforcement officials,  information on the number of enforcement actions is an imperfect  measure of prevalence because the information is not always timely   (i.e., cases may be prosecuted years after a crime has occurred), and the  number of actions an agency can prosecute is dependent on its priorities  and available resources.
section_title: Federal Efforts to Combat These Schemes Are Part of a Broader Focus on Mortgage Fraud, and a Public-Private Effort Focuses on Consumer Education
paragraphs: The primary multiagency effort to combat financial crimes, including  foreclosure rescue schemes, is the FFETF, which an executive order  established in November 2009. According to members with whom we  spoke, the FFETF expanded previous federal efforts to combat  foreclosure rescue schemes. The FFETF has five working groups, one of  which—the Mortgage Fraud Working Group—is focusing on foreclosure  rescue schemes as well as other types of mortgage fraud. According to  members of the Mortgage Fraud Working Group that we contacted, the  group provides a venue for member agencies to share information on best  practices and to sponsor activities to enhance understanding of mortgage  fraud. While the working group’s primary focus is on law enforcement  activities, members have also expressed interest in supporting consumer  education initiatives. Other efforts designed to protect consumers from  these schemes involve federal, state, nonprofit, and private organizations  and primarily focus on consumer education and outreach.
subsections: section_title: Current Federal Effort to Combat These Schemes Is the FFETF, Which Incorporated Previous Federal Efforts
paragraphs: As we have previously discussed, in November 2009, an executive order  established the FFETF to strengthen the efforts of DOJ in conjunction  with federal, state, and local agencies to investigate and prosecute  significant financial crimes and violations relating to the current financial  crisis and economic recovery efforts. The executive order established DOJ  as the lead federal agency for the FFETF. The range of financial crimes  and violations for which the FFETF is responsible is broad, including  among others, bank fraud, mortgage fraud, securities and commodities  fraud, and discrimination. While foreclosure rescue schemes are not  specifically listed in the executive order, DOJ told us that such schemes  are a type of mortgage fraud that falls within the FFETF’s purview.  Moreover, the executive order described the FFETF’s mission and  functions as (1) providing advice to the Attorney General on the  investigation and prosecution of financial crimes and violations when the  Attorney General determines such cases to be significant; (2) making  recommendations to the Attorney General for action to enhance  cooperation among federal, state, local, tribal, and territorial authorities  responsible for the investigation and prosecution of significant financial  crimes and violations; and (3) coordinating law enforcement operations  with representatives of these same authorities. The U.S. Attorney General  is chair of the FFETF, and DOJ appointed an executive director in  February 2010 to oversee its operations.
The FFETF includes 25 federal departments, agencies, and offices, as well  as numerous inspectors general, and state and local authorities. Moreover,  the executive order encourages the FFETF to invite representatives of  state and local law enforcement agencies and specifically the National  Association of Attorneys General and the National District Attorneys  Association to participate in the task force to coordinate law enforcement  operations. In addition, the executive order requires the FFETF to conduct  outreach with representatives of other organizations, such as financial  institutions and nonprofit organizations.
According to some of the FFETF members that we contacted, the FFETF  expands upon the administration’s earlier multiagency effort to combat  financial crimes, including foreclosure rescue schemes, that was first  announced on April 6, 2009. This earlier effort was intended to coordinate  the efforts of federal and state agencies, as well as private sector entities,  to protect homeowners seeking assistance under the Making Home  Affordable Program. According to agency officials, individual efforts  established in relation to the April 2009 announcement, particularly those  by FTC and FinCEN, continue under the respective agencies. Federal  agencies that participated in this announcement—FTC, Treasury  (FinCEN), HUD, and DOJ—undertook various supporting activities that  sometimes were a continuation of their previous efforts, including the  following examples:    FTC officials indicated that the agency had coordinated two enforcement  sweeps in conjunction with other federal and state agencies against  persons perpetrating loan modification schemes, which according to FTC  resulted in over 300 independent enforcement actions. FTC had  undertaken law enforcement actions against companies involved in the  sale of foreclosure rescue services and published its first consumer  warnings about these practices on its Web site in February 2008.  Additionally, FTC officials noted that they had developed a public service  video for distribution to community groups and legal aid offices, among  others.
At the time of the April 6, 2009, announcement, FinCEN also issued  guidelines to financial institutions identifying and submitting SARs for  suspected foreclosure rescue scams that it had been developing prior to  the April announcement. FinCEN officials stated that the agency has  devoted significant resources to supporting state law enforcement efforts  to pursue these schemes—for example, by developing a database with  investigative information that could be useful to agencies targeting the  same suspects. In addition, FinCEN provides direct research and  analytical support to state and local law enforcement agencies on  individual cases and provides training to states on how to utilize FinCEN’s  law enforcement support functions—for example, by showing them how  to query its databases.
In support of the April 6, 2009 announcement, DOJ established four  working groups to discuss ways of addressing mortgage fraud, including  foreclosure rescue schemes, through information sharing and  coordination. The groups met several times before the creation of the  FFETF, at which point their activities were largely incorporated into the  new larger effort.
HUD officials stated that while not in direct response to the April 2009  announcement, the agency used its HUD-approved and HUD-funded  housing counseling network to help borrowers determine their eligibility  for the federal loan modification and refinancing programs we have  previously discussed.
Representatives with whom we spoke of participating federal and several  state agencies said that they derived value from the additional  coordination provided by the April 2009 announcement, noting particularly  that they began to collaborate more closely with other agencies. In  particular, they noted working more closely with FTC, and some state  agencies noted receiving an unprecedented amount of assistance from  FinCEN in using information from SARs for their own investigative leads.  Moreover, some federal and state officials involved in the April 2009 effort  said that the April 6, 2009, announcement was useful in focusing the  federal government’s and the public’s attention on the issue of foreclosure  rescue schemes.
section_title: FFETF’s Efforts to Combat Foreclosure Rescue Schemes Are Part of Its Broader Focus on Mortgage Fraud
paragraphs: DOJ officials told us that while the FFETF’s Mortgage Fraud Working  Group covers different types of mortgage fraud, the working group has  sponsored activities that have contributed to addressing foreclosure   rescue schemes. According to DOJ officials, the working group  coordinates efforts to combat all types of mortgage fraud, including  common “flipping” schemes and organized criminal enterprises preying on  government programs, such as FHA loan guarantee programs, as well as  foreclosure rescue schemes. Members of the working group we  interviewed indicated that these schemes were discussed at various  working group meetings. The Mortgage Fraud Working Group keeps  written agendas that describe the presenters and the subjects covered at  meetings, as well as presentation materials and attendance sheets. While  these materials show that foreclosure rescue schemes are discussed at  meetings, the extent of that discussion cannot be determined because the  working group does not keep meeting minutes. Working group members  told us that the meetings provided them with a venue to discuss broader  issues (e.g., best practices on combating mortgage fraud and emerging  schemes), as well as operational issues, but that they generally do not  discuss individual cases. The working group as a whole has met three  times—in December 2009, February 2010, and June 2010—but according  to DOJ officials, members also engage in numerous ad hoc meetings, in  person or by teleconference.
According to DOJ officials, these working group discussions have resulted  in activities that have provided them with additional information about  mortgage fraud and promoted best practices in combating this fraud,  including foreclosure rescue schemes. According to information provided  by the FFETF, the working group hosted mortgage fraud summits during  the first half of 2010 in four cities—Columbus, Detroit, Miami, and  Phoenix—that are in regions of the country that were experiencing high  rates of foreclosure. During these summits, community group members  briefed working group members on the types of mortgage fraud that they  are experiencing, and federal, state, and local law enforcement officials  held separate closed discussions. In early March 2010, the FFETF  conducted a 3-day Mortgage Fraud Task Force course at the National  Advocacy Center for both federal and state law enforcement officials,  which included, among other things, discussions of best practices and  enforcement tools as they relate to different types of mortgage fraud,  including foreclosure rescue schemes. In addition, in late May 2010, the  FFETF conducted another 3-day Mortgage Fraud Seminar at the National  Advocacy Center, including a session specifically focused on foreclosure  rescue schemes. Members of the Mortgage Fraud Working Group that we  contacted and others aware of its activities expressed a positive view of its  initial efforts to date. For example, several officials involved in the effort  indicated that the working group is creating partnerships and opening  lines of communication, particularly between state and federal agencies.
DOJ officials also reported that the Mortgage Fraud Working Group was  responsible for coordinating Operation Stolen Dreams, a series of federal  and state law enforcement actions undertaken by agencies represented on  the FFETF between March 1, 2010, and June 17, 2010. DOJ reported that  this operation involved more than 1,500 criminal defendants—119 of  whom were allegedly involved in foreclosure rescue schemes—and   191 civil enforcement actions, of which more than 100 pertained to  foreclosure rescue schemes. According to DOJ officials, the  announcement of this sweep to the public reinforced the consumer  awareness and deterrence objectives of the working group.
In addition, FFETF’s leadership, as well as two of its members, indicated  that they are looking for other opportunities to enhance consumer  education. For example, the FFETF launched a Web site  (www.StopFraud.gov) in April 2010 to provide information about FFETF  activities and information for consumers, including descriptions about  foreclosure rescue schemes and how to report them. The Web site  provides links to consumer advisories, including those posted by FTC, the  Board of Governors of the Federal Reserve System, and NeighborWorks  America. In addition, according to FFETF agendas, working group  members have held specific discussions on how to warn the public about  foreclosure rescue schemes.
section_title: Other Major Federal, Private, and Nonprofit Coordinated Efforts Focus on Consumer Education and Information Gathering
paragraphs: In addition to the FFETF, there are other coordinated efforts involving  federal, state, private, and nonprofit entities aimed at addressing the  problem of foreclosure rescue schemes through activities intended to  enhance consumer outreach and education. In June 2009, the Loan  Modification Scam Prevention Network (the Network) was formed  primarily by four organizations—Fannie Mae, Freddie Mac, the Lawyers’  Committee, and NeighborWorks America—to coordinate efforts educating  homeowners about these schemes and to gather information about their  prevalence. According to a representative of Fannie Mae, coordination is  important to avoid confusing consumers with mixed messages from  different sources. The FFETF Mortgage Fraud Working Group invited a  representative of the Network to describe its efforts at the Mortgage Fraud  Summit in Detroit, Michigan, on April 23, 2010.
As explained by Fannie Mae and the Network’s members, member  organizations support the following activities:    Consumer outreach and education: This initiative is primarily led by  NeighborWorks America, which was appropriated $6 million by Congress  in March 2009 to develop a national campaign warning the public about  loan modification scams. NeighborWorks America subsequently  launched the campaign—Loan Modification Scam Alert—in October 20 and is targeting African American, Asian, Hispanic, and senior  homeowners in   25 areas with high risk of foreclosure. NeighborWorks America has  reported that it has used various media in these area service announcements, and its campaign Web site  (www.LoanScamAlert.org)—to reach people and encourage them to dial  the HOPE Hotline for loan modification assistance, find a local  c ounselor, or visit the Web site to learn about or report scams.
PE  Hotline believing they have been subject to a scam and obtains the homeowner’s consent to provide this information to the Lawyers’  Committee. The Lawyers’ Committee compiles this information, as well a complaints it has received through its Web-based complaint form, into  single database. To make the Web-based complaint form accessible to  homeowners, the form is hyperlinked to the Loan Modification Scam Alert  campaign Web site as well as to the Web sites for Making Home Affordable and the FFETF, H OPE Hotline.   which are sites that also list the telephone number of the    Providing Information to FTC: To support federal and state law  enforcement efforts, the Lawyers’ Committee began submitting these data from its database to the FTC’s Consumer Sentinel complaint database o n  May 14, 2010. In April 2010, the Lawyers’ Committee reported that the  primary s Hource of complaints on foreclosure rescue schemes is the HOPE  otline.
section_title: Several Factors Co Affect the Federal Government’s Suc and the Working Group’s Efforts Be Limited by Weakness Planning
subsections: section_title: Several Key Factors May Affect the Federal Government’s Likelihood of Success in Combating Foreclosure Rescue and Loan Modification Schemes
paragraphs: Our analysis of interviews with representatives of federal and state  agencies and nonprofit organizations suggests that several factors may  affect the federal government’s likelihood of success in combating  foreclosure rescue schemes. A broad array of federal and state officials,  including law enforcement officials, as well as representatives of nonprofit  organizations, indicated that it is essential to make consumers aware of  these schemes, to provide them information on legitimate alternatives to  using such services, and to encourage them to report suspicious incidents  to authorities. As noted by several law enforcement agencies, it is easier to  stop a crime from taking place than it is to catch the criminal later and  obtain restitution. Representatives of several nonprofit organizations told  us that implementation of a widespread media campaign—using  newspapers, radio, and television—would be the most effective way of  communicating this information. A representative of NeighborWorks  America also noted that most local organizations do not have the funds to  compete with the money the persons perpetrating the schemes spend on  misleading advertising. A representative of Consumers Union noted that it  was important to find ways of delivering information to hard-to-reach  communities (e.g., those where a large number of the individuals are not  native English speakers or do not have ready access to or proficiency with  computers).
Another factor we identified in our analysis as being important to the  federal government’s efforts is coordinating law enforcement activities.  Representatives of both federal and state law enforcement agencies said  that the coordination of federal and state law enforcement efforts is  important for several reasons, including the need to share investigative  information, consolidate resources, and decide on the most appropriate  legal action and whether a federal or state agency should take the action.  Several law enforcement officials, as well as two nonprofit organizations,  explained that sharing investigative information across agencies was  particularly needed because these schemes are often perpetrated by  entities that operate across state lines. Thus, these and other officials  commented on the usefulness of information—such as complaint  information made available through the FTC’s Consumer Sentinel, SARs  provided by FinCEN, and information that states may have on emerging  schemes—that can be brought to the attention of the federal government.  In addition, some officials mentioned that it is important for different  agencies working on the same case to coordinate their activities to share  information and not duplicate efforts.
The importance of federal and state law enforcement coordination was  also supported by how federal and state officials described their  respective roles. The U.S. Attorneys from most of our five case-study  states told us that they usually only undertake cases in which the dollar  value of the loss is substantial—for example, at least $1 million in the case  of mortgage fraud—or if the nature of the case is particularly complex,  such as cases involving attorneys, title companies, straw buyers, and  financial service providers. According to DOJ officials, U.S. Attorney  offices, given their limited resources, competing demands and differing  crime patterns in various districts, may employ loss thresholds, which  result in the referral of cases to local prosecutors’ offices. Thus, U.S.  Attorneys are less likely to pursue advance-fee schemes, which typically  involve much smaller dollar losses (approximately $3,000 per  homeowner). In contrast, most of the State Attorneys General we  interviewed referred to state laws or regulations that in their view either  discouraged the perpetration of these schemes or made it easier for them  to take enforcement actions. However, representatives of each of these  states also identified the benefits of federal assistance in investigating and  prosecuting these schemes, particularly where they are conducted across  state lines. Several of the state representatives also noted the usefulness of  federal support for their own investigations, such as the training provided  by FinCEN to help understand and interpret Bank Secrecy Act data.
In addition, representatives of several nonprofit organizations and law  enforcement officials noted that strengthening laws could be an important  factor in combating schemes. There is no federal statute specifically  prohibiting foreclosure rescue and loan modification schemes; therefore,  federal agencies rely on investigating and prosecuting under general  federal laws that may have been violated, such as wire fraud and false  advertising, or in assisting state authorities with their investigations and  prosecutions. Several officials noted that a federal law prohibiting the  charging of fees in advance for loan modification services would be more  effective in deterring these schemes than laws enacted as part of a state- by-state approach, and other officials observed that such laws would make  filing enforcement actions easier because they would remove any  ambiguities about whether a crime was committed. Several state and  federal officials also indicated that additional resources were needed to  investigate and pursue more cases.
The Mortgage Fraud Working Group has developed an action plan that  describes the composition and function of the group and that addresses  some of the factors in combating these schemes. The plan articulates the  primary purpose of the working group as being “to increase enforcement  in the area of mortgage fraud, and to do so through greater coordination  among law enforcement agencies, the development and sharing of  enforcement strategies, and training.” The action plan also describes  activities undertaken by the working group between November 2009 and  June 2010 and activities contemplated for the period between late June  2010 and the subsequent meeting of the full Task Force Committee to be  held in late November 2010. Finally, the action plan contains a section that  identifies the metrics that the working group is using or considering for  use in evaluating its progress in the area of mortgage fraud enforcement.  Among these metrics are the proliferation of local mortgage fraud task  forces, number of people trained in mortgage fraud, and number of  enforcement sweeps conducted.
The activities identified in the working group’s action plan address two of  the factors that we identified as being important to the efforts to combat  these schemes—consumer education and law enforcement coordination.  For example, the action plan lays out various proposals on ways to warn  the public about foreclosure rescue schemes but does not specify  agreements on the roles and responsibilities of member agencies, as well  as those that might be developed with nonfederal agencies already active  in this area, in carrying out consumer education efforts. The bulk of the  action plan items focus on activities to improve coordination between  federal, state, and local law enforcement agencies regarding combating  mortgage fraud. Specifically, the action plan identifies the following key  coordination efforts: mortgage fraud summits to be held in additional  cities across the country, and additional mortgage fraud training sessions  to be held at the National Advocacy Center for both federal and state law  enforcement officials. As we have discussed previously, during the  summits, community groups are invited to discuss the types of mortgage  fraud that they are experiencing, and separate sessions are held with  federal, state, and local law enforcement officials to discuss coordination  issues related to mortgage fraud enforcement efforts. The FTC has  proposed a rule that, among other things, restricts practices concerning  companies collecting an advance fee for loan modification services. The  comment period for the proposed rule has closed, and FTC officials said  that they are in the process of reviewing public comments and finalizing  the proposed rulemaking.
section_title: The Working Group’s Planning Efforts Do Not Include Key Collaborative Practices, Which Could Limit Its Ability to Optimize Its Efforts to Combat Mortgage Schemes
paragraphs: Although the Mortgage Fraud Working Group’s action plan addresses  some of the factors that could impact the federal government’s success in  combating mortgage schemes, the plan does not include some key  practices that our prior work has found can help enhance and sustain  collaboration among federal agencies. Of the eight practices that we have  found to enhance multiagency coordination efforts, four in particular  appear relevant to the Mortgage Fraud Working Group’s current efforts:    defining and articulating a common outcome;    establishing mutually reinforcing or joint strategies designed to help align  activities, core processes, and resources to achieve a common outcome;   agreeing on roles and responsibilities, including leadership; and    developing mechanisms to monitor, evaluate, and report on the results of  the collaborative effort.
The Mortgage Fraud Working Group’s action plan does identify common  outcomes or goals for the working group. However, although the goals  outlined in the action plan—increasing coordination among law  enforcement agencies, developing and sharing of enforcement strategies,  and training—appear to be long term in nature, they are supported by  activities that do not go beyond 6-month intervals. The working group’s  action plan also does not discuss the need for the collaborating agencies  to establish strategies that work in concert with those of their partners or  that are joint in nature. Such strategies help in aligning the partner  agencies’ activities, core processes, and resources to accomplish the  common outcome. Additionally, the action plan does not address  agreements on the roles and responsibilities of the working group  members regarding activities to be undertaken to achieve the group’s  goals. Similarly, the performance measurements in the action plan—such  as the frequency of, attendance at, and types of mortgage fraud discussed  at the summits—are useful for evaluating the activities themselves but not  the extent to which the activities have strengthened progress toward the  broader goal of increasing coordination activities. Without performance  measures that can be used to measure progress toward the working  group’s long-term goal, the working group may not be able to evaluate its  effectiveness in strengthening law enforcement efforts, including efforts to  combat foreclosure rescue schemes, or to determine whether its current  activities are the best ones to strengthen law enforcement efforts and  address the needs of its federal and state members.
In addition, the action plan does not tailor strategies to the various types  of mortgage fraud that the working group addresses. Consequently, the  plan does not include strategies or performance measures that relate to  foreclosure rescue and loan modification schemes. Planning that reflects  the specific nature of these schemes may be important. For example, as  we have previously discussed, schemes often operate across state lines.  State Attorneys General indicated to us that they need federal assistance  in pursuing persons that operate these schemes across the borders of their  states. U.S. Attorneys also told us that they generally do not pursue these  types of schemes due to the need to focus on schemes involving larger  dollar amounts. The lack of strategies to effectively deal with the unique  nature of these schemes may negatively impact the efforts of the working  group to increase coordination among relevant law enforcement agencies  to combat schemes that cross state lines. In addition, the group may be  limited in its ability to develop performance measures related to these  particular schemes.
section_title: Conclusions
paragraphs: Because data on the prevalence of foreclosure rescue schemes are limited,  it is difficult to establish a reliable estimate of just how often these  schemes are occurring. Nevertheless, available data and views from a wide  variety of sources suggest that foreclosure rescue schemes are indeed an  important consumer problem and that new types of schemes are emerging.  Furthermore, state law enforcement officials have expressed concern that  schemes can be difficult to combat because they are often perpetrated  across state lines and those engaging in them can relocate the schemes to  other parts of the country very quickly.
While the April 2009 announcement signaled the federal government’s  interest in strengthening efforts to specifically combat foreclosure rescue  schemes, it is not clear to what extent that the announcement resulted in  significant interagency collaboration among the key federal law  enforcement agencies. However, several individual agencies, notably  FinCEN and FTC, appear to have undertaken various major initiatives  subsequent to the April 2009 announcement that involve extensive  collaboration with state agencies, which they believe added momentum to  the federal government’s efforts to support law enforcement actions  against these schemes. The subsequent creation of the FFETF appears to  build on the April 2009 announcement by expanding the focus of the  federal government’s coordinated efforts to financial fraud in general,  including mortgage fraud. However, the focus on foreclosure rescue and  loan modification schemes is not as clear as in the April 2009  announcement.
The Mortgage Fraud Working Group has developed an action plan that  identifies the working group’s primary purpose as increasing enforcement  in the area of mortgage fraud. The action plan also, in part, addresses two  of the key factors that we identified as important to federal efforts in  combating foreclosure rescue and loan modification schemes—educating  consumers about deceptive practices and effectively coordinating law  enforcement efforts to combat these schemes. Consumer education is a  key factor in combating these schemes, since law enforcement agency  officials indicated that it is easier to stop a crime from taking place than it  is to catch the criminal later and obtain restitution. Greater coordination  in the area of mortgage fraud is also particularly important given the wide  array of federal, state, and local agencies involved, as well as nonprofit  partners. However, the action plan does not address key practices that can  help enhance and sustain collaboration among federal agencies, such as  the need for a clear, long-term strategy; clear delineation of roles and  responsibilities; and results-oriented performance measures. Without an  action plan that identifies roles and responsibilities and key metrics, the  working group may not be able to optimize the efforts of its members to  combat mortgage fraud through enhanced coordination of federal, state,  and local agencies. In addition, the working group’s action plan does not  specify strategies for foreclosure rescue and loan modification schemes,  and the distinctive nature of these schemes suggests that they warrant a  specific approach, particularly in identifying ways for supporting state- level law enforcement efforts. By developing a strategy that clearly  delineates short- and long-term strategic goals, differentiates between  types of mortgage fraud, and includes accompanying performance  measures, the Mortgage Fraud Working Group could enhance its ability to  contribute to law enforcement efforts to combat foreclosure rescue  schemes and other types of mortgage fraud.
section_title: Recommendations for Executive Action
paragraphs: To develop a comprehensive strategy for the FFETF’s Mortgage Fraud  Working Group’s efforts to combat mortgage fraud, we recommend that  the U.S. Attorney General, as the head of the FFETF, do the following:   (1) develop clear, long-term strategies and performance measures that the  working group can use to evaluate its progress toward achieving its long- term goal of increasing enforcement in the area of mortgage fraud and   (2) to the extent that the working group considers foreclosure rescue  schemes to be a priority, develop strategies specific to these schemes,  including those that enhance coordination of law enforcement agencies  and that provide consumer education.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report for review and comment to the heads of  the Departments of Housing, Justice, and the Treasury and the Federal  Trade Commission. We received written comments from the Department  of Justice. These comments are summarized below and reprinted in  appendix II. DOJ, FTC, HUD, and on behalf of Treasury, the Financial  Crimes Enforcement Network and the Office of the Comptroller of the  Currency, provided technical comments, which we incorporated in this  report, where appropriate.
In its written comments, DOJ concurred with our recommendations that  the FFETF develop clear, long-term strategies and performance measures  to evaluate its progress in increasing enforcement in the area of mortgage  fraud and consider developing strategies specific to foreclosure rescue  schemes. DOJ stated that it agreed that incorporating additional long-term  strategies and metrics, as feasible, into its action plan, as we  recommended, could enhance and sustain the progress to date of the  Mortgage Fraud Working Group’s efforts to improve federal, state, and  local law enforcement agencies’ abilities to coordinate and adapt to the  everchanging schemes. DOJ also stated that it would provide a detailed  plan of action in its response to Congress.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  date of this letter. At that time, we will send copies of this report to other  interested congressional committees, the Attorney General of the United  States, the Secretary of the Department of Housing and Urban  Development, the Secretary of the Treasury, the Chairman of the Federal  Trade Commission, and other interested parties. The report also will be  available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs are on the last page of this  report. GAO staff who made major contributions to this report are listed in  appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To determine what is known about the nature and prevalence of mortgage  foreclosure rescue and loan modification schemes, we collected available  data from and interviewed representatives of the four federal agencies— the Federal Trade Commission (FTC) and the Departments of Justice  (DOJ), the Treasury (Treasury), and Housing and Urban Development  (HUD)—and their relevant bureaus or divisions that were identified as  members of a multiagency initiative to combat these schemes as  announced by the administration on April 6, 2009. Within DOJ, we  interviewed officials from the Executive Office for U.S. Attorneys, the  Federal Bureau of Investigation (FBI), Criminal Division, Civil Rights  Division, and Office of Justice Programs. In addition, we analyzed  information related to the enforcement actions that FTC brought in  calendar years 2008 and 2009 against individuals engaged in foreclosure  rescue and loan modification schemes. Furthermore, we contacted  national nonprofit organizations that collect consumer information or  have conducted studies related to foreclosure rescue and loan  modification schemes. These organizations include NeighborWorks  America®, the Lawyers’ Committee for Civil Rights Under Law (Lawyers’  Committee), the Homeownership Preservation Foundation, the National  Community Reinvestment Coalition, and the Council of Better Business  Bureaus. We also contacted other nonprofit organizations knowledgeable  about these schemes, including the Consumers Union and the Hope Now  Alliance. We interviewed representatives of these national nonprofit  organizations, which allowed us to obtain additional information on the  nature of the schemes, as well as the likely persons engaged in and  potential victims of these schemes. Several of these organizations also  provided us with information about the number of potential victims,  although we determined the information could not be used for the purpose  of estimating the prevalence of these schemes. This information included  the number of people who reported that they may have been victimized to  the Homeownership Preservation Foundation’s Homeowner’s HOPE™  Hotline (1-888-995-HOPE), and the number of people who had complaints  about possible scams reported by the Lawyer’s Committee. Lastly, we  obtained information on the characteristics of potential schemes from a  study published by the National Community Reinvestment Coalition.
To obtain additional information on the nature of these schemes, including  descriptions of persons likely to engage in them and potential victims, we  collected information specific to five states—Arizona, California, Florida,  Illinois, and New York. We selected these five states because they featured  some of the highest numbers of potential foreclosures, calculated using  Mortgage Bankers Association’s fourth quarter 2009 information on the  total loans past due by state, and we also considered geographic  dispersion. In each state, we conducted structured interviews with  representatives of the State Attorney General’s office, a U.S. Attorney’s  office, and one other agency or nonprofit organization in each state who  was knowledgeable about these schemes. In the absence of information  that could reliably be used to assess the prevalence of these schemes, we  asked state officials to provide us with information on the indicators that  they typically use to assess the likely prevalence of a consumer problem in  their states, such as the number of consumer complaints, enforcement  actions, or investigations. We also asked state officials to provide us with  information on the state laws and regulations that they use to take actions  against persons who engage in these schemes.
To obtain information on the activities of the Financial Fraud  Enforcement Task Force (FFETF), we interviewed a Deputy Attorney  General within DOJ and the Executive Director of the FFETF. To obtain  information about the FFETF’s specific activities related to combating  foreclosure rescue and loan modification schemes, we interviewed the  federal and state agency cochairs of the FFETF’s Mortgage Fraud Working  Group, which includes representatives of DOJ’s Civil Justice Division, the  U.S. Attorneys’ Offices, FBI, HUD’s Office of Inspector General, and the  National Association of Attorneys General (state representative). We also  interviewed select members of the Mortgage Fraud Working Group—FTC,  Treasury’s Financial Crimes Enforcement Network (FinCEN), and the   U.S. Postal Inspection Service—we selected on the basis of their roles in  combating foreclosure rescue and loan modification schemes and  recommendations from the working group’s cochairs. In addition, to  understand how the FFETF and the working group functioned, we  obtained and reviewed (1) the executive order establishing the FFETF’s  mission and key functions and meeting agendas; (2) perspectives from the  working group’s cochairs and previously listed members; and (3) available  documentation on the working group’s activities related to these schemes  as identified by members (e.g., training, mortgage fraud summits, and  meetings). We also attended the public session of the FFETF’s Mortgage  Fraud Summit in Detroit, Michigan, on April 23, 2010, to determine the  extent to which these summits addressed the problem of foreclosure  rescue and loan modification schemes. To obtain information about other  federal efforts to combat these schemes, we interviewed the federal  agencies and state representatives that announced efforts to combat these  schemes on April 6, 2009—including FTC, DOJ, Treasury’s FinCEN, and  HUD—and collected documentation on their activities.
We also interviewed state officials involved in the April 2009  announcement, including State Attorney General representatives who  participated in the press announcement and the DOJ working groups that  were formed following this announced effort. To identify other major  efforts related to combating these schemes, we interviewed federal, state,  private, and nonprofit officials, such as those involved in the Loan  Modification Scam Prevention Network (the Network), primarily two  government sponsored enterprises—Fannie Mae and Freddie Mac—and  two national nonprofit organizations—the Lawyers’ Committee and  NeighborWorks America, about national efforts to combat these schemes.  We collected and reviewed descriptive information on what the Network  described as its key efforts—primarily the media consumer education  campaign run by NeighborWorks America and an effort by the Lawyers’  Committee to collect consumer complaint information from victims of  foreclosure rescue and loan modification schemes. We also reviewed  additional individual consumer education activities that the federal, state,  and nonprofit agencies we have previously mentioned described using  publicly available information.
To identify what factors may affect federal efforts’ likelihood of success in  combating foreclosure rescue and loan modification schemes, we analyzed  information provided by the representatives of the federal and state  agencies and national nonprofit organizations that we interviewed  throughout the course of our review. This information largely pertained to  what these representatives identified as the challenges to combating these  schemes but also included information on factors that they identified as  important in combating these schemes, such as the nature of law  enforcement coordination. In addition, to assess how factors related to  strategic planning could affect the federal effort’s likelihood of success,  we considered our October 2005 report on practices that can help enhance  and sustain collaboration among federal agencies when assessing how the  FFETF’s current planning practices could affect collaboration among its  many federal agencies and other partners, such as state and nonprofit  agencies.
We conducted this performance audit from September 2009 to July 2010 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Comments from the Department of Justice
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Harry Medina (Assistant Director),  Meghana Acharya, Sonja J. Bensen, Kristy Brown, Elizabeth H. Curda,  Melissa F. Kornblau, Otis S. Martin, Marc Molino, Linda Rego, Jennifer W.  Schwartz, Andrew Stavisky, James D. Vitarello, and Heneng Yu made key  contributions to this report.