The recent foreclosure crisis has resulted in significant opportunities for individuals and companies to take advantage of homeowners who are at serious risk of losing their homes to foreclosure. In 2010, we reported that national default and foreclosure rates rose sharply from 2005 through 2009 to the highest level in 29 years. Since 2009, the rates of default and foreclosures have steadily declined. However, data from the Mortgage Bankers Association for the first quarter of 2013 show that the number of home loans potentially facing foreclosure—borrowers who were more than 60 days past due—remains elevated, with nearly 1.6 million (4 percent) of home loans currently being serviced in the United States. As figure 1 shows, California and Florida have the highest number of potential foreclosures, a statistic that has remained consistent since we reported in 2010. In response to the rising number of defaults and foreclosures, using authority granted through the Emergency Economic Stabilization Act of 2008, the administration announced the Making Home Affordable Program in February 2009, which includes a number of programs, such as the Home Affordable Modification Program (HAMP), intended to assist homeowners facing potential foreclosure.an incentive to servicers and investors for reducing the borrower’s monthly mortgage payment. In addition to HAMP, other government and private programs are designed to provide assistance to homeowners facing foreclosure. For example, Fannie Mae and Freddie Mac have their own loan modification programs. Homeowners may also be able to refinance under the Home Affordable Refinance Program, a program that was created by FHFA to help homeowners who are current on their mortgages, but owe more than the value of their homes. The program is administered by the enterprises. Individual private financial institutions may offer their own proprietary loan modification programs for homeowners who do not qualify for HAMP. Free counseling services, such as those provided by HUD-certified counseling agencies, are available to homeowners seeking to avoid foreclosure and can be accessed through the Homeowner’s HOPE Hotline (1-888-995-HOPE). The hotline 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. However, desperate homeowners may be unaware of these free alternatives or may be steered away from free sources of assistance. Under HAMP, Treasury pays Further, two major enforcement actions—the Independent Foreclosure Review (IFR) and the National Mortgage Settlement—were brought against leading mortgage servicers following reviews of their foreclosure processes. In 2011 and 2012, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (Federal Reserve) issued consent orders against 16 of the largest U.S. mortgage servicers. The consent orders required servicers to conduct foreclosure reviews to determine if borrowers suffered financial harm directly resulting from errors, misrepresentations, or other deficiencies that may have occurred during the foreclosure process. The mortgage servicers were required to retain independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010 and to provide payment to homeowners who suffered financial injury as a result of foreclosure processing errors. In 2013, regulators reached agreements with 15 of the 16 mortgage servicing companies subject to the 2011 and 2012 consent orders to discontinue the foreclosure reviews and to provide over $3.9 billion in direct payments to eligible borrowers and approximately $5.7 billion in foreclosure prevention assistance. In February 2012, DOJ, Treasury, and HUD along with 49 state attorneys general reached an agreement with the five largest mortgage servicers on improper foreclosure practices. This agreement, known as the National Mortgage Settlement, resulted in approximately $25 billion in monetary sanctions and relief to distressed homeowners.the settlement is for immediate aid to homeowners needing loan modifications through principal reduction, refinancing, or other forms of relief. The settlement requires the servicers to pay up to $17 billion in One of the provisions in principal reduction and other forms of loan modification relief nationwide. A number of federal and state enforcement agencies perform different roles and use different legal authorities to combat foreclosure rescue schemes. Within the federal government, CFPB, FTC, SIGTARP, U.S. Postal Inspection Service, and agencies within DOJ, FHFA, HUD, and Treasury are members of MFWG and have key roles in investigating and prosecuting persons who have engaged in these types of schemes (see table 1). In addition to MFWG, some member agencies also participate in FFETF’s Rescue Fraud Working Group, another multiagency working group focused on criminal and civil fraud enforcement related to the Troubled Asset Relief Program (TARP), including foreclosure rescue schemes. The Rescue Fraud Working Group is co-chaired by officials from SIGTARP, Treasury’s Office of Financial Stability, and the Acting Assistant Attorney General for DOJ’s Criminal Division. Fannie Mae and Freddie Mac play a role in educating consumers about schemes. On the state level, state attorneys general play key roles in prevention, detection, and enforcement of these schemes. In December 2010, FTC issued the Mortgage Assistance Relief Services (MARS) rule, which includes two primary provisions: (1) a ban on advance fees for foreclosure rescue services; and (2) a requirement that companies inform consumers that a lender may refuse to modify their loan and that consumers can reject any terms negotiated with their lender. Attorneys are generally exempt from the rule if they meet three conditions: (1) they provide mortgage assistance relief services as part of their practice of law; (2) they are licensed in the state where the consumer or the consumer’s dwelling is located; and (3) they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must also meet two additional requirements: (1) they must place any funds they receive from a consumer in advance of performing legal services in a client trust account, and (2) they must abide by state laws and regulations covering such accounts. CFPB reissued the MARS rule without substantive modification in December 2011. All of the states we spoke with reported having laws similar to the MARS rule. In addition, FTC reported that as of 2010, at least 30 states and the District of Columbia had enacted similar statutes or regulations. Except for California, all of the states we spoke with said they also had similar exemptions for attorneys. Since our report in 2010, data collected by federal agencies suggest that foreclosure rescue schemes have increased. Data on these schemes that federal agencies collect include consumer complaints and reports filed by financial institutions. These data show an increase each year from 2009 to 2011, and a slight decline in the number of complaints in 2012. However, the number of complaints through April 2013 suggests another increase for the year. Agency officials and others we contacted noted that foreclosure rescue schemes had become increasingly complex since 2010—involving attorneys and the bankruptcy code, among other things. In particular, schemes involving attorneys appear to have increased recently, presenting challenges to law enforcement. FTC’s Consumer Sentinel Network, an online database available to law enforcement agencies, compiles consumer complaints received by FTC and law enforcement and other organizations, including other federal and state agencies and nonprofit organizations. As shown in figure 2, consumers filed almost 9,000 mortgage modification/foreclosure relief complaints in 2009 to the entities reporting into the network, but more than 20,000 complaints in 2011. The number of these complaints fell slightly in 2012. Preliminary data for 2013 suggest that the number of complaints could increase for the year, as consumers had filed more than 7,000 of these complaints through April 30. Based upon a review of FTC’s Consumer Sentinel Network, FTC representatives reported that the median amount paid for foreclosure rescue services remained relatively unchanged, from $2,400 in 2009 to roughly $2,500 in 2012, although not all complaints included this information.percentage of complaints were from homeowners in California. That is, of those consumers that reported their state of residence, nearly 30 percent were from California. While California continued to be the state with the In addition, FTC officials reported that in 2009, the highest highest number of complaints, its share of all complaints decreased in each of the subsequent years, falling to 23 percent in 2010, 19 percent in 2011, 18 percent in 2012, and 15 percent in the first 4 months of 2013. Florida also had relatively more complaints compared with other states, accounting for between 7 and 10 percent of all complaints over the same period. In 2009 and 2010, most of the foreclosure rescue scheme complaints in the Consumer Sentinel Network were submitted directly to FTC by consumers. However, since 2011 the Consumer Sentinel Network’s primary source of foreclosure rescue scheme complaints has been the Lawyers’ Committee. In 2011, 53 percent of complaints were submitted by the Lawyers’ Committee. That percentage increased to 61 percent in 2012 and 75 percent in the first 4 months of 2013. Since early 2010, the Lawyers’ Committee has maintained a complaint database for its public- private partnerships, collectively the LMSPN, which specifically collects information on complaints related to foreclosure rescue schemes. As noted earlier, the database includes consumer complaints submitted directly through the Lawyers’ Committee’s website, as well as those submitted to any of LMSPN’s 85 government members or 47 nongovernment members using the Lawyers’ Committee’s standardized complaint form. In addition to basic information about the homeowner, the complaint form collects other detailed information about the alleged schemes, including type and amount of dollar losses. Like the complaints submitted to the Consumer Sentinel Network, complaints submitted to LMSPN peaked in 2011 and fell slightly in 2012, but early data for 2013 suggest another potential increase. Treasury’s Financial Crimes Enforcement Network (FinCEN) receives SARs from financial institutions about suspected violations of financial laws and regulations. FinCEN reported that in 2009 and 2010 it received 189 and 556 SARs, respectively, that contained narratives describing foreclosure rescue schemes. In 2011, the number of SARs related to foreclosure rescue schemes increased considerably, rising to 2,799, and in 2012 the number increased further to 4,427 (see fig. 3). However, FinCEN noted that a growing awareness of and focus on foreclosure rescue schemes may have influenced this upward trend. For example, FinCEN issued an advisory in June 2010 that encouraged SAR filers to use “foreclosure rescue scam” in the narrative part of the report to facilitate the identification and isolation of pertinent SARs. While both national- and state-level sources of consumer complaints indicate that foreclosure rescue schemes continue to be a concern, consumer complaints may not provide a precise measure of the actual prevalence of these schemes. As we discussed in 2010, consumers can file complaints with any number of federal or state agencies, making the actual number of complaints difficult to aggregate. FTC officials also told us at that time that the complaints the agency received might represent only a small portion of potential schemes. Officials we contacted for this report also noted that consumers might not report being victims of fraud, either because they were unaware that they had been victimized or because they were embarrassed about having fallen prey to a scheme. Finally, trends in the prevalence of schemes over time may also be difficult to determine based on consumer complaints. For example, the increases in complaints from 2009 to 2011 may indicate a growing awareness of foreclosure rescue schemes, prompting more victims to file complaints, rather than an actual increase in schemes. Similarly, increased efforts to collect complaint information, such as those made by the Lawyers’ Committee beginning in 2010, may have contributed to the rise in the number of complaints reported during this time period. The number of homeowners who were at least 60 days delinquent decreased during this time period, suggesting that factors other than the number of borrowers in danger of foreclosure influenced the increase in consumer complaints about foreclosure rescue schemes. SAR data have similar limitations. As we noted in 2010, they also do not provide a precise measure of the prevalence of foreclosure rescue schemes or of trends in the prevalence of these schemes, for several reasons. Unlike consumer complaints, SARs are filed by financial institutions, which may not always be aware of the crime because perpetrators usually approach homeowners directly and may even advise them to cease communications with their lenders. In addition, FinCEN noted that most mortgage fraud SARs report suspected fraud that directly affects the lender, such as false statements on loan applications, rather than fraud against the borrower, such as foreclosure rescue schemes. FinCEN analysts also noted that mortgage fraud SARs were typically filed 2 or more years after the suspicious activity began, generally due to financial institutions’ lack of awareness of wrongdoing at the time the activity occurred. This time lag may make it difficult to determine trends. As noted previously, increased awareness of the issue may also have encouraged financial institutions to report foreclosure rescue schemes. In addition to the June 2010 advisory discussed earlier, FinCEN noted that a number of well-publicized federal investigations, enforcement actions, reports, bulletins, and guidance also likely increased awareness and underscored the importance of reporting these schemes. Several agency officials and representatives of nonprofits told us that foreclosure rescue schemes had become more complex over time. For example, we noted in 2010 that there were two primary types of schemes: those that charged homeowners an up-front fee for a loan modification that was never provided (advance-fee scheme), and those that transferred ownership of a house to a third party to avoid foreclosure (sale-leaseback scheme). Officials we contacted for this report, however, described several other types of schemes that had become common. FTC and others have also issued public education material that describes these kinds of schemes. While these schemes also often involve advance fees, they tend to be more complex, as described below. Forensic audits. Schemes in which the scammer offers to review a homeowner’s mortgage loan documents to determine whether the lender complied with state and federal mortgage lending laws. For example, in a case brought by FTC, the alleged scammers claimed on their website that “up to 95 percent of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.” Using this claim, they said the results of the “forensic audits” they provided would help consumers negotiate a loan modification to avoid foreclosure, according to the FTC complaint. They also promised that, for a fee, consumers could obtain mortgage modifications with reduced interest rates and lower monthly mortgage payments.receive loan modifications and discovered too late that their houses were in foreclosure. However, consumers often did not Bankruptcy to avoid foreclosure. Schemes in which scammers promise to negotiate a loan modification with the lender for a fee. However, instead of contacting the lender, the scammer files a bankruptcy case in the homeowner’s name, sometimes without the homeowner’s knowledge. Officials with the Executive Office for U.S. Trustees told us that because the bankruptcy process temporarily halts all debt collection efforts, including foreclosure proceedings, the homeowner believed that the scammer had helped in avoiding foreclosure. In some cases, the homeowner continues to pay regular fees to the scammer, believing that the scammer is still helping. The officials reported that from 2009 through 2012, they had made 45 criminal referrals to law enforcement based on foreclosure rescue schemes and brought 191 formal and informal civil actions. Consumer complaints in the LMSPN database involving such schemes have increased. In 2010, only 4 percent of complaints about foreclosure rescue schemes indicated that bankruptcy services had been offered to them, but this percentage increased to 10 percent in the first 4 months of 2013. However, consumer complaints may undercount the proportion of schemes involving bankruptcy because consumers may not be aware that scammers have filed bankruptcy cases in their names. Mass joinder lawsuits. Schemes in which the scammer, usually a lawyer or law firm, will promise the homeowner that the lender can be forced to modify the loan through this type of legal action. While mass joinder lawsuits can be used legitimately, the lawyers bringing them are usually paid only if the lawsuit is successful. Fraudulent mass joinder schemes, in contrast, require the homeowner to pay a fee to participate in the lawsuit. In one mass joinder scheme—which was halted at the request of FTC—the scammers were only posing as a law firm and engaged actual attorneys only briefly to file lawsuits. Once the lawsuits were filed and the scammers were paid, the scammers failed to follow through with the lawsuits, leaving homeowners in the same or worse financial shape than before, FTC alleged. According to FTC, the scammers charged each homeowner $6,000 to $10,000 in advance fees. Short sale schemes. Schemes in which scammers, sometimes called “short sale negotiators” or “short sale processors,” promise to expedite a short sale and usually require the homeowner to pay a fee for these services. In one type of short sale scheme, “short sale negotiators” guarantee a short sale approval in exchange for an advance fee. The “short sale negotiator” takes the fee and does little or nothing in return. Many of the officials we contacted told us that attorney involvement in foreclosure rescue schemes had become a concern in recent years. The Lawyers’ Committee also reported a recent increase in complaints citing legal representation (see fig. 4). This increase may be associated, in part, with the MARS rule’s exemption for attorneys. Further, Lawyers’ Committee data through February 2013 showed that schemes with attorney involvement often resulted in higher losses for the homeowner. The average loss reported by homeowners alleging attorney involvement in a scheme was $3,449, compared with an average loss of $2,727 for homeowners reporting scams with no attorney involvement. The offices of state attorneys general also reported receiving consumer complaints alleging attorney involvement in schemes. For example, a representative of the Illinois state attorney general’s office told us that of the complaints her office received on foreclosure rescue schemes, roughly 70 percent of them involved lawyers or law firms. In addition, a representative from the California state attorney general’s office noted that despite the lack of an attorney exemption in California’s advance-fee ban, the number of reported schemes involving attorneys had risen there as well. The apparent increase in the prevalence of schemes involving attorneys has created new challenges for law enforcement. First, stakeholders noted that it could be difficult to determine whether attorneys were actually providing legitimate services. For example, while the MARS rule prohibits companies from instructing consumers not to contact their lenders, this practice may be permitted if the foreclosure-assistance provider is an attorney. In commenting on FTC’s proposed MARS rule, the American Bar Association (ABA) noted that clients typically expected attorneys they retained to act as their representatives in dealing with other parties, such as lenders and servicers, and that up-front fees, such as a retainer, were typically required by attorneys providing legitimate legal services. However, an attorney acting for a company perpetrating a scheme may not actually act on the client’s behalf and may be brought in only for a short period to file certain documents. As a result, determining in whose interest the attorney is acting in such cases can be difficult. Further, attorney-client privilege can present another challenge. One state official noted that attorneys could cite attorney-client privilege as a way to avoid subpoenas and slow down investigations, allowing companies to continue with their schemes and defraud homeowners. In addition, disciplining attorneys can be a challenge. For example, one state official said that a separate disciplinary group existed for lawyers but that this group did not have law enforcement authority and could investigate only individual lawyers with a license in that state. In addition, this group cannot pursue a case in which the name of a law firm, rather than an individual, is used. Finally, investigations by these disciplinary groups are confidential, making it difficult for law enforcement agencies, such as the state attorney general’s office, to work with them. ABA has taken some steps to address attorney involvement in foreclosure rescue schemes. In 2010, ABA’s Section of Individual Rights and Responsibilities (IRR) received approval from ABA’s Board of Governors to work with LMSPN. In 2011, IRR created a special advisory group of ABA Committees and Sections that has been involved in combating foreclosure rescue schemes. The purpose of the special advisory group is to examine the issue of lawyer participation in loan modifications and foreclosure rescue schemes and to develop an action plan to deter lawyers from participating in these schemes. A representative of the group noted that it would be proposing a policy resolution for possible ABA adoption and would educate ABA members on this issue. IRR expects to present the resolution to ABA’s House of Delegates legislative session in February 2014. In addition, several state bar associations have issued ethics alerts, warning attorneys in their states against becoming involved in these schemes. We noted in 2010 that some state officials said they were aware of foreclosure rescue schemes that targeted particular communities. Officials we spoke with for this report noted that some populations continued to be the targets of these schemes. For example, a U.S. Trustee Program official noted that schemes involving bankruptcy to avoid foreclosure had targeted minority communities. In addition, available data and other representatives we spoke with continued to indicate that minority populations could be particularly vulnerable to these schemes. According to the LMSPN database, complaints filed by black or African American homeowners have increased since 2010. In 2010, 17 percent of complaints were filed by this group, compared with 20 percent in 2011, 22 percent in 2012, and 23 percent in the first 4 months of 2013. Representatives of the National Community Reinvestment Coalition also said that they had received more than 50 complaints about an attorney who had targeted mostly African-American and Latino communities for his scheme. The attorney told consumers that he had working relationships with various federal agencies and programs, took up-front fees from them, and did not provide any services. In another example, FTC filed two cases against telemarketers who targeted Spanish-speaking homeowners, promising mortgage modifications in exchange for large up- front fees. In addition, older homeowners appear to be common targets for foreclosure rescue schemes. According to the Lawyers’ Committee, seniors (defined as those 51 years or older) are among the hardest hit by rescue schemes. As of October 2012, 49 percent of complaints in LMSPN’s database were filed by those 51 or older. The average loss reported by seniors was $3,129, compared with the overall average loss of $2,997. Additionally, an FBI bulletin warns of schemes in which seniors in danger of foreclosure are led to believe they may obtain a reverse mortgage.qualify for a reverse mortgage but that they do qualify for another type of mortgage that can help save them from foreclosure. According to the FBI bulletin, the perpetrators locate an investor willing to act as a straw buyer (a person who pretends to be a legitimate buyer but is actually purchasing on behalf on another person); order fraudulent home repairs; complete an inflated appraisal; and obtain a forward mortgage subsequently transferring the property away from the seniors and pocketing the equity. The victims lose the equity in their home and may be told to repurchase the property from the scammer or lose it altogether. Some foreclosure rescue schemes have associated themselves with government programs that assist homeowners. For example, a Lawyers’ Committee representative told us that some have capitalized on Treasury’s Hardest Hit Fund program, federal settlement funds, and the Emergency Home Loan Program by claiming that they could help In one instance, a group known homeowners access these programs. as the National Legal Help Center claimed that, for a fee, it could assist homeowners in getting benefits from the National Mortgage Settlement. In addition, this group falsely claimed that it was associated with IFR.Websites and announcements for programs such as HAMP, the National Mortgage Settlement, and IFR now have warnings about scams and the availability of free legitimate help, but a Lawyers’ Committee representative noted that such alerts had not always been included in earlier communications with homeowners. The Lawyers’ Committee representative also noted that the sheer number of government programs might provide opportunities for dishonest actors to confuse homeowners, making them unsure where to turn for legitimate help. A representative of the Homeownership Preservation Foundation (HPF), which runs the Homeowner’s HOPE Hotline, noted that complaints related to rescue schemes had spiked in March 2012 and January 2013. The March 2012 spike may be related to the first wave of IFR’s national advertising campaign (January-February 2012), along with the announcement of the National Mortgage Settlement (February 2012). The January 2013 spike followed announcements of IFR payment agreements in January 2013 (see fig. 5). Agency officials and representatives of other organizations continued to cite the challenges to combating these schemes that we noted in 2010. For example, law enforcement officials continued to note that the ability of scammers to start up and shut down quickly made it difficult to combat these schemes. In addition, some said that scammers could operate under different names, making them difficult to track. A few stakeholders noted that the small dollar amounts of individual losses presented a challenge because federal agencies were less likely to be able to take on the cases. However, as we noted in 2010, it may be easier for state attorneys general to pursue these cases. Finally, we noted in 2010 that officials had told us that it was essential to encourage consumers to report suspicious incidents to authorities. As noted above, agency officials and representatives of nonprofit organizations we spoke with for this report also said that consumers might not report potential schemes, either because they were not aware that they were being victimized or were too embarrassed to report it. They cited consumers’ unwillingness to report these schemes as an ongoing challenge. Since we last reported on this issue in 2010, FFETF and its members have undertaken a number of activities intended to enhance coordination among federal, state, and local authorities responsible for combating foreclosure rescue schemes. These efforts are consistent with the three key elements of GAO’s fraud prevention model: (1) preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions. FFETF’s preventive efforts have focused on educating consumers about these schemes to help them avoid becoming victimized. FFETF and its members have also made efforts to enhance the reporting of potential incidents by both consumers and financial institutions to aid in the detection and monitoring of these schemes. FFETF member agencies that we contacted told us that one of the key outcomes of the task force had been greater information sharing and coordination among enforcement agencies regarding these schemes that facilitated investigations and prosecutions. Members of FFETF’s MFWG have focused their outreach efforts on raising public awareness of foreclosure rescue schemes in order to prevent homeowners from being victimized. The results of our prior work serve to emphasize the overall lesson learned that fraud prevention is the most effective and efficient means to minimize fraud, waste, and abuse. MFWG has used a variety of approaches to consumer education and outreach that are outlined in MFWG’s annual strategic scorecards, a management tool MFWG developed to track its progress in combating foreclosure rescue schemes. Examples of MFWG’s outreach and education efforts include holding regional education summits for distressed homeowners, housing counselors, and public advocates and directing more individuals to FFETF’s mortgage fraud information on its website, StopFraud.gov, which FFETF considers a one-stop site for consumers to learn how to protect themselves from becoming victims and to report cases of fraud. MFWG has held at least eight regional summits near areas that have been hardest hit by foreclosures since 2010. During the summits, homeowners and local law enforcement agencies received information on mortgage fraud trends from other law enforcement officials, victims, housing counselors, and industry experts. According to FFETF, the presenters represented law enforcement, victims, housing counselors, industry experts, and others who discussed mortgage fraud issues in the community, including foreclosure rescue schemes. In addition, MFWG noted that it held 27 events to educate homeowners, counselors and public advocates in fiscal year 2012, exceeding its target goal of 20 events. These events included foreclosure prevention forums, training for consumer groups and legal services communities, and presentations to members or representatives of the armed forces. For example, in 2012 two mortgage fraud summits in Las Vegas and Los Angeles included discussions on the impact of mortgage fraud on the community, trends in mortgage fraud, and ways to avoid becoming a victim. The Los Angeles summit was attended by officials and practitioners involved in mortgage fraud enforcement and prevention and included representatives such as the FBI, FTC, HUD, California Attorney General’s Office, California State Bar, California Department of Real Estate, and other federal, state, county, and local agencies, including the Los Angeles County Department of Consumer Affairs. Individual MFWG members and nonprofit organizations have also conducted outreach as a part of their own efforts to increase awareness of foreclosure rescue schemes. For example, HUD’s “Know it. Avoid it. Report it.” information campaign alerts homeowners to the availability of free housing counselors who can help with foreclosure issues and provide information on avoiding foreclosure schemes. According to HUD, the information campaign merges the efforts of NeighborWorks, the Lawyers’ Committee, and the Homeowner’s HOPE Hotline to provide an “early warning system” that helps homeowners protect themselves and their homes, while also providing the tools necessary to report schemes to enforcement authorities. HUD targets its information campaign to areas with the highest rates of foreclosure using multiple kinds of outreach. One official told us that in 2011, the HUD campaign delivered information on schemes via television, radio, and print advertisements to the areas affected by high rates of foreclosure. In 2012, HUD shifted its outreach to these areas to digital and radio-based mediums. According to the MFWG strategic scorecard, the mortgage fraud prevention and victim assistance sections of the StopFraud.gov website received over 15,000 hits during fiscal year 2012. The mortgage fraud and victim assistance sections contain links to foreclosure rescue scheme resources and educational materials created by other federal agencies, such as FTC, SIGTARP, and nonprofit organizations such as NeighborWorks. For example, the mortgage fraud webpage links to SIGTARP, CFPB, and Treasury’s joint alerts titled “Tips for Avoiding Mortgage Modification Scams” and "Avoiding HAMP Mortgage Modification Scams; Resources for Servicemembers," and directs individuals to the websites of other agencies and nonprofit organizations, such as NeighborWorks, LoanScamAlert.org, and the Mortgage Bankers Association Consumer Help Desk. SIGTARP officials told us that promoting StopFraud.gov and the associated foreclosure rescue scheme resources allows individuals to better protect themselves from victimization. According to FFETF’s first year report, FFETF has also partnered with LMSPN members, Fannie Mae, Freddie Mac, the Lawyers’ Committee, and NeighborWorks to support PreventLoanScams.org, which supports national, state, and local law enforcement efforts to fight mortgage fraud. The website provides tips on how to avoid schemes, information on how to obtain assistance through free housing counseling, and an accessible complaint form that can be filled out online and then entered into the LMSPN complaint database. Most individual members of MFWG with whom we spoke had also developed web pages that provided information on foreclosure rescue schemes or directed consumers to the Lawyers’ Committee and NeighborWorks websites on foreclosure rescue schemes. Six of the seven MFWG member agencies we spoke with had specific information on foreclosure rescue schemes on their websites, including descriptions of schemes and information on how to submit a complaint. In addition, several agency and nonprofit organizations’ websites emphasize that borrowers do not need to pay for loan modification assistance. Six of the seven MFWG member agencies we interviewed posted information on their websites about the free assistance that is available to borrowers who are at risk of foreclosure. MFWG member agencies have continued to collect data on foreclosure rescue schemes in order to support efforts to detect and combat them. Agency officials and nonprofit representatives told us that they collected information on the borrower, the services they were offered, the amount they paid for the services, and any contact information for the individual or company that offered the service. They explained that individuals could submit their complaints through the detailed LMSPN complaint forms, housing counselors staffing the Homeowner’s HOPE Hotline’s dedicated team, or individual agency hotlines. Agencies might also receive complaints through referrals from enforcement agencies, mail, and emails. Since 2010, MFWG and others have made efforts to improve the collection of consumer complaints related to foreclosure rescue schemes. For example, the working group achieved its goal of increasing the number of states reporting consumer complaints to FTC’s Consumer Sentinel Network from 9 to 14 in 2012, and set a goal for 20 states by the end of 2013. In addition, CFPB has begun collecting consumer complaints about these schemes and submits them to the FTC’s Consumer Sentinel Network. Also, LMSPN created a standardized complaint form that is used by all of its government and nonprofit partners. According to Lawyers’ Committee representatives, partner organizations have links to the online form on their websites and the form is also made available at homeowner events, such as Making Home Affordable Program events and during conversations between servicers or housing counselors and borrowers. As of April 30, 2013, nearly three- quarters of the foreclosure rescue scheme complaints in FTC’s Consumer Sentinel Network database had been submitted through LMSPN complaint database. Agencies have also continued to make use of available information to aid investigations. In 2010, we reported that FinCEN provided enforcement authorities with investigative information on SAR filings and other data to help develop leads on potential foreclosure rescue schemes. FinCEN officials told us that FinCEN had conducted additional analysis in support of investigative cases for more than 20 state and federal agencies. In addition, state and federal officials told us that they could access complaint information to help develop leads against the criminals perpetrating the schemes. For example, officials from FTC said that its staff members often started their investigations by focusing on companies and individuals associated with a high number of complaints in FTC’s Consumer Sentinel Network. Similarly, a U.S. attorney we spoke with stated that his office regularly consulted several databases, including the Consumer Sentinel Network, when trying to develop leads for their investigations. Other individuals we spoke with said that they also used the databases to find additional information for their ongoing investigations. For example, a representative from one of the attorney generals’ offices whom we interviewed stated that investigators might search the Consumer Sentinel Network for complaints with variations of a certain attorney’s name. Another state official from a state attorney general’s office told us that the office generally used the Consumer Sentinel Network to determine whether additional victims were associated with an individual or company in order to more effectively calculate restitution. MFWG members have also sought mechanisms to help financial institutions more easily identify suspected mortgage fraud, including foreclosure rescue schemes. As previously discussed, FinCEN issued an advisory in June 2010 encouraging SAR filers to use “foreclosure rescue scam” in the narrative portion of the report to help law enforcement agencies more easily identify and isolate pertinent SARs. FinCEN officials also noted that as of March 2012, a specific checkbox for foreclosure rescue schemes was added to the SAR form, further facilitating the identification of these schemes. According to the officials, federal and state law enforcement and regulatory agencies continue to track SARs reporting foreclosure rescue schemes, as these reports provide insight into trends for this crime and leads for the initiation and support of investigations and enforcement efforts. MFWG co-chairs discuss the SAR filings and other complaint data twice a year as part of their ongoing effort to identify emerging trends in foreclosure rescue schemes. Multiple representatives of MFWG member agencies that we contacted told us that MFWG had facilitated information sharing and coordination among enforcement agencies on investigations. During MFWG meetings, members discuss the best way to coordinate on emerging trends in foreclosure rescue schemes and enforcement jurisdiction. One FTC official noted that MFWG had been beneficial because it enabled members to make connections with officials from other agencies with whom they might not otherwise interact. Officials from the Executive Office for the U.S. Trustees told us that some of their working relationships were a direct outgrowth of their membership in FFETF. For example, the office did not have any contact with SIGTARP until it became part of the working group. Since beginning to share information, the two entities have been able to develop a case against perpetrators of a national mortgage foreclosure rescue scheme. In addition, according to a FFETF representative, the Los Angeles and Las Vegas mortgage fraud summits held to reach out to homeowners also served the purpose of convening federal, state, and local enforcement agencies to discuss how to improve their regional enforcement coordination efforts. Between 2009 and 2012, working group members using joint investigations and broad enforcement initiatives coordinated their investigations and successfully filed criminal charges against more than 226 defendants allegedly involved in foreclosure rescue schemes. In 2010, we discussed MFWG’s efforts to prosecute individuals and companies perpetrating schemes through Operation Stolen Dreams, a series of federal and state law enforcement actions undertaken by agencies represented on FFETF. DOJ reported that Operation Stolen Dreams involved 119 criminal defendants allegedly involved in foreclosure rescue schemes—and more than 100 civil enforcement actions that pertained to the schemes. In August 2013, MFWG members announced the results of the Distressed Homeowners Initiative, a year- long coordinated enforcement effort conducted by members of MFWG in fiscal year 2012. While Operation Stolen Dreams had a broader focus on mortgage fraud, the Distressed Homeowners Initiative specifically targeted fraud that preyed on homeowners, such as foreclosure rescue schemes. DOJ officials told us that the initiative included undercover work and an enforcement surge led by FBI in Southern California. They also said that FBI compiled information packages on potential targets, which it shared with its field offices across the country. The initiative targeted perpetrators both civilly and criminally and, according to DOJ, resulted in criminal charges against 107 defendants. The estimated losses to at least 17,185 victims totaled more than $95 million. Cases were also filed against 128 civil defendants in federal courts across the country. In these cases, at least 19,198 victims suffered an estimated total loss amount of $54 million. Federal enforcement agencies have successfully coordinated investigations beyond the broad enforcement initiatives discussed earlier. SIGTARP officials stated that FFETF’s success is due to members’ ability to work more efficiently together than as individual agencies. SIGTARP reported that 43 of its criminal investigations relating to foreclosure rescue schemes were multiagency efforts between 2009 and 2012. In addition, FTC officials told us that 14 of their 36 cases involving foreclosure rescue schemes were conducted in partnership with other agencies during that same period and that these partnerships were a direct outgrowth of their membership in FFETF. FHFA’s Office of the Inspector General also coordinated on 12 cases with other FFETF members between 2011 and 2012. Some agency officials told us that foreclosure rescue scheme cases did not comprise a large proportion of their workload. For example, FHFA officials told us that the majority of cases FHFA filed involved loan origination fraud. However, FTC officials told us that 36 of the agency’s 363 consumer protection cases involved the MARS rule and foreclosure rescue schemes between 2009 and 2012—a relatively substantial portion given the wide range of consumer protection issues FTC covers. In addition, officials told us that many investigations related to foreclosure rescue schemes were conducted at the state level. For example, in 2010, the Florida Attorney General’s Office filed 19 civil cases for foreclosure rescue schemes, representing 8.4 percent of its caseload for that year. An official from the California Attorney General’s Office told us that between 2009 and 2012 its office filed 20 criminal cases and an estimated 10 to 15 civil cases for foreclosure rescue schemes. Officials from the Arizona Attorney General’s Office told us that it received nearly 5,000 complaints relating to foreclosure rescue schemes between 2009 and 2012 and successfully litigated 23 civil cases during that same time. MFWG has also identified other areas of focus in its enforcement efforts, including shutting down or forcing into compliance confusing, misleading, or fraudulent web advertisers and websites and conducting training for DOJ attorneys and prosecutors, state and local attorneys, and investigators. For example, according to the MFWG strategic scorecard, Treasury, SIGTARP, and FTC took action against over 800 confusing, misleading, or fraudulent websites in fiscal year 2012. Treasury officials told us that they conducted web scans in order to identify unauthorized uses of Treasury program trademarks or misrepresentations of programs. Between 2009 and 2012, Treasury issued notices of trademark infringement (cease-and-desist letters) to owners of approximately 400 websites for unauthorized use of Treasury program trademarks. In addition, SIGTARP officials told us that they contacted Internet search engines (e.g., Google, Yahoo, Bing) to take down over 200 alleged fraudulent websites. They noted that subsequently, these companies suspended relationships with 900 web advertising agencies related to the alleged fraudulent websites. Another of MFWG’s ongoing efforts is mortgage fraud training and outreach to law enforcement attorneys and industry representatives. For example, DOJ, FBI, and inspectors general from FHFA and HUD conducted 25 training events in 2012 for state and local attorneys and investigators across the country. Officials from the FHFA inspector general’s office told us that the office had coordinated with the National District Attorneys Association to conduct such training for state attorneys general. The officials also said that the office also did outreach to industry representatives, including the Mortgage Bankers Association, the National Association of Appraisers, and the National Association of Mortgage Regulators. MFWG members said that their outreach and enforcement efforts would continue in order to educate homeowners and prevent more from falling victim to schemes. Most agency officials we spoke with said that they did not specifically track the amount of resources dedicated to combating foreclosure rescue schemes, but some federal and state officials noted resource limitations as a challenge. A U.S. Trustee official told us that limited resources were a challenge and that he could not be sure whether resource constraints would allow for the same level of effort in combating foreclosure rescue schemes in the future. The U.S. Trustee Program’s 2013 Budget Request notes that these schemes are complex and require the retention and training of specialized attorneys and other staff. Other officials told us that more cases could be pursued if more resources were available, but some officials said that resources were not a limiting factor in the amount of enforcement activity. Representatives of nonprofit organizations we spoke with cited limited resources as a constraint. For example, a NeighborWorks representative noted that finding adequate resources had been a challenge and that its Loan Scam Alert campaign had not been able to purchase as much paid advertising as it would have liked. As a result, the representative noted that the campaign may not have been receiving as much television coverage as the schemes were. Available data suggest that foreclosure rescue schemes continue to be a concern, and federal agencies and others have increased their efforts to combat these schemes in recent years. Our fraud prevention framework highlights that increased awareness of fraud is crucial to preventing individuals from falling victim to fraudulent situations. Homeowners who have adequate information on foreclosure rescue schemes and legitimate sources of assistance will be more likely to understand and make more informed decisions when seeking assistance. Federal agencies will need to continue to coordinate their outreach, detection, and enforcement efforts to increase awareness among homeowners and prevent more from falling victim to schemes. We provided a draft of this report for review and comment to the heads of the Departments of Justice, Housing and Urban Development, and the Treasury, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, Fannie Mae, Freddie Mac, the Federal Trade Commission, the Special Inspector General for the Troubled Asset Relief Program, and the U.S. Postal Inspection Service. We received written comments from the Assistant Secretary for Financial Stability at the Department of the Treasury and SIGTARP, which are summarized below and reprinted in appendices II and III, respectively. DOJ, HUD, FHFA, FTC, SIGTARP, Treasury, and the U.S. Postal Inspection Service provided technical comments that were incorporated, as appropriate. In its written comments, Treasury noted that it valued GAO’s insights as it continues to combat foreclosure rescue schemes. Treasury reiterated that the Office of Financial Stability conducts daily website scans to identify unauthorized uses of Treasury program trademarks or misrepresentations of programs, and has issued notice of trademark infringement to owners of approximately 400 websites. Treasury also highlighted that the Office of Financial Stability conducts preliminary investigations into allegations of foreclosure rescue schemes related to the Troubled Asset Relief Program, the findings of which may result in referrals to SIGTARP and other law enforcement agencies, and has partnered with CFPB to provide the public with tips and alerts for avoiding mortgage modification schemes. In its technical comments, SIGTARP noted that it is an independent entity within Treasury and is not subject to the supervision of the Secretary. As such, SIGTARP requested that we separate our discussion of SIGTARP from our discussion of Treasury. In response, we listed SIGTARP as a separate agency from Treasury in our description of agencies’ roles in combating foreclosure rescue schemes. In addition, SIGTARP noted that the draft report did not reflect the work of the FFETF’s Rescue Fraud Working Group, which also plays a role in combating these schemes. We added a description of this working group and noted that SIGTARP is one of its co-chairs. SIGTARP in its written comments stated that it concurred with the sections of the report related to SIGTARP’s work and noted that it has made significant progress in combating these schemes and will continue to work with law enforcement partners to investigate them. We are sending copies of this report to the appropriate congressional committees and to the heads of the Departments of Justice, Housing and Urban Development, and the Treasury, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, Fannie Mae, Freddie Mac, the Federal Trade Commission, the Special Inspector General for the Troubled Asset Relief Program, and the U.S. Postal Inspection Service. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. To examine the nature and prevalence of mortgage foreclosure rescue and loan modification schemes, we analyzed available information on consumer complaints about foreclosure rescue schemes from the Federal Trade Commission’s (FTC) Consumer Sentinel Network, as well as the Lawyers’ Committee for Civil Rights Under Law’s Loan Modification Scam Prevention Network (LMSPN) database. In addition, we examined published information on the number of Suspicious Activity Reports related to foreclosure rescue schemes. We spoke with officials and representatives who manage these databases about their data collection processes and internal quality controls and tested the data where applicable. We found FTC’s Consumer Sentinel Network, LMSPN, and SAR data to be sufficiently reliable for the purpose of discussing the nature and prevalence of foreclosure rescue schemes in this report. We recognize that the total number of foreclosure rescue schemes reported does not capture all occurrences of schemes; however it captures the available information on this area of fraud. We also contacted seven member agencies of the Financial Fraud Enforcement Task Force’s (FFETF) Mortgage Fraud Working Group (MFWG) that were active in combating foreclosure rescue schemes—the Consumer Finance Protection Bureau, the Department of Justice, the Federal Housing Finance Agency and its Office of Inspector General, FTC, the Department of Housing and Urban Development and its Office of Inspector General, the Department of the Treasury, the Special Inspector General for the Troubled Asset Relief Program, and the U.S. Postal Inspection Service. In addition, we contacted representatives of two government-sponsored enterprises, Fannie Mae and Freddie Mac, as well as the offices of the attorneys general from Indiana and the five states we spoke with for our 2010 report—Arizona, California, Florida, Illinois, and New York—states with some of the highest numbers of potential foreclosures. We also spoke with a number of nonprofit organizations that are actively addressing these schemes. To determine the status and scope of the federal government’s multiagency effort and other major efforts to combat these schemes, we interviewed officials and obtained relevant documentation from FFETF and MFWG members listed previously. We also interviewed officials and obtained documents from the enterprises and nonprofit organizations that have undertaken major efforts in this area, including the National Fair Housing Alliance, the National Community Reinvestment Coalition, HOPE NOW, the Homeownership Preservation Foundation, and lead members of LMSPN, including the Lawyers’ Committee for Civil Rights Under Law and NeighborWorks America. We also reviewed MFWG’s 2012 and 2013 strategic scorecards to determine the activities the working group had completed. We also collected information on the number of civil and criminal foreclosure rescue scheme cases state and federal agencies pursued and reviewed individual agencies’ websites for information on foreclosure rescue schemes. We reviewed Standards for Internal Control in the Federal Government to identify requirements for effective internal controls related to fraud detection and prevention. Additionally, we looked at our past reviews of federal programs in which we identified the key elements of a framework for fraud prevention, detection, and prosecution. Finally, we interviewed agency officials about their efforts to conduct outreach, collect consumer complaints, and conduct enforcement activities related to these types of schemes. We conducted this performance audit from November 2012 to October 2013 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. In addition to the individual named above, other key contributors to this report were Harry Medina (Assistant Director), Rachel E. Batkins, Bethany M. Benitez, Emily Chalmers, Jena Sinkfield, Andrew Stavisky, Winnie Tsen, and James D. Vitarello.

Summary: In July 2010, GAO reported on federal efforts to combat foreclosure rescue schemes--schemes that promise but do not deliver foreclosure prevention assistance. Subsequently, the Dodd-Frank Wall Street Reform and Consumer Protection Act required GAO to study interagency efforts to crack down on these schemes. This report updates GAO's 2010 report and examines (1) available information about the prevalence and nature of foreclosure rescue schemes, and (2) the status and scope of the federal government's multiagency effort and other major initiatives to combat them. To address these objectives, GAO analyzed consumer complaints, obtained information from federal agencies participating in FFETF, and interviewed representatives of six states with high populations of borrowers at risk of foreclosure, and nonprofit organizations that are also making efforts to combat these schemes. In its written comments, Treasury noted that it valued GAO's insights as it continues to combat foreclosure rescue schemes. The Special Inspector General for the Troubled Asset Relief Program concurred with the findings related to its work and noted that it has made significant progress in combating these schemes and will continue to work with law enforcement partners to investigate them. Foreclosure rescue schemes remain at historically high levels and have become more complex. The Federal Trade Commission's (FTC) Consumer Sentinel Network--an online database of consumer complaints received by FTC, law enforcement agencies, and other organizations--showed that complaints about these schemes rose from around 9,000 in 2009 to more than 18,000 each year in 2010, 2011, and 2012. In addition, the Financial Crimes Enforcement Network reported steady increases over the same period in the number of Suspicious Activity Reports (SAR)--reports filed by financial institutions about suspected violations of financial laws and regulations--related to these schemes. Agency officials and representatives of nonprofits told GAO that the schemes had become increasingly complex, creating challenges for law enforcement. For example, schemes involving attorneys--which tend to involve greater losses--had become more common in recent years following a regulation that bans upfront fees, but provides an exception for attorneys. These schemes present unique challenges because attorneys typically collect fees upfront and enforcement officials have difficulty trying to determine whether attorneys are providing legitimate services. Furthermore, officials and representatives of nonprofits also noted that some populations, including minorities and the elderly, continued to be targeted. Since GAO last reported on this issue in 2010, the Financial Fraud Enforcement Task Force (FFETF) and its members have undertaken a number of actions to educate borrowers on how to avoid being victimized by these schemes. These efforts have also emphasized the need for consumers and institutions to report possible fraudulent schemes and the importance of enhanced information sharing among law enforcement agencies investigating and prosecuting these schemes. Specifically, FFETF members have developed and participated in various outreach efforts, including hosting regional education summits for distressed homeowners, counselors, and law enforcement officials and directing more individuals to resources on FFETF's mortgage fraud webpage, StopFraud.gov. FFETF member agencies' fraud detection efforts have focused on gathering information from SARs and complaints from the FTC Consumer Sentinel Network and sharing this information among members. Member agencies that GAO contacted also indicated that information sharing and coordination on investigations among FFETF members had led to joint investigations and broad enforcement initiatives. For example, one year-long multiagency effort resulted in criminal charges against 107 defendants. Cases were also filed against 128 civil defendants in federal courts across the country.