Minorities Comprise Nearly Half of All Loan Mod Scam Victims
Miami ranked highest among cities for reported scams, followed by Los Angeles, Las Vegas, Houston, and Chicago. Interestingly, while California’s reported fraudulent activity was significantly higher than other states, only one city from the Golden State ranked in the top five, indicating that purported scam activity isn’t concentrated in any one area. The Federal Trade Commission (FTC) issued a rule in early 2011 prohibiting the payment of any upfront fees to negotiate mortgage reduction payments on behalf of a homeowner. Nevertheless, an untold number of companies and individuals continue to openly and flagrantly violate the rule, asking on average for an upfront fee of $2,589.58 to modify a mortgage. In virtually all instances, either no mortgage
reduction was achieved or no work was actually performed.
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Nearly half the victims of mortgage loan modification scams are of AfricanAmerican, Hispanic, or Asian descent, according to statistics released by the Homeownership Preservation Foundation (HPF), an independent national non-profit dedicated to helping distressed homeowners navigate financial challenges and avoid mortgage foreclosure since 2004. Nearly one-in-four of the possibly fraudulent scams reported were in California. Since February 2010, the Homeownership Preservation Foundation (HPF) has operated a specialty unit of their Homeowner’s HOPE Hotline (888-995HOPE), a resource for financially distressed homeowners. The unit focuses on those who believe they have been victimized by a scam or have been approached by someone offering related services they suspect are fraudulent. Virtually half of the
calls fielded since the hotline was launched were from homeowners who voluntarily identified themselves as African-American, Hispanic, or Asian. “Repeated studies have shown that minorities were disproportionately targeted for predatory lending during the housing boom, and we have compelling evidence indicating that minorities are bearing the brunt of an unusually high percentage of mortgage scams,” said Colleen Hernandez, chief executive officer of the HPF. The state of California leads all states in possible fraudulent activity, accounting for 22 percent of the calls. Florida was the second highest with seven percent, followed by Texas with five percent, New York with five percent, and Georgia with four percent.
consulting in TransUnion’s financial services business unit. “Also, these results are wellaligned with our past research into the reversal of the payment hierarchy dynamic. Bottom line—consumers prioritize their payments based on product preference when they find themselves constrained financially. In that sense, loan defaults have always been strategic.” A noteworthy exception was seen in credit cards where a slight increase in delinquencies occurred when consumers delayed the opening of the new tradeline. The delinquency changes were minimal between accounts opened seven to 11 months later (18.5 percent) and 12 or more months later (18.7 percent). “This study is critical in that it sheds more light on consumer behavior in a challenging economy,” said Becker. “The analysis of consumer preferences between products and how they manage and prioritize them is important information lenders need to leverage to effectively manage their customer relationships. This study affords lenders greater insight into consumer performance, hopefully leading to a more mutually profitable, long-term relationship between lender and borrower.” The study reviewed data from a random sample of five million consumers with an open mortgage trade in January 2008. From this sample, TransUnion looked at a subset that had at least one non-mortgage trade open as of December 2007, went 120-plus days delinquent on the mortgage trade between January 2008 and June 2009 and opened at least one additional trade after the mortgage went delinquent. This left the final sample size of approximately 129,000 new accounts for analysis. The sample was studied through a performance window of 12-17 months. TransUnion evaluated the product mix of these consumers post-foreclosure, calculated each consumer’s VantageScore in the month prior to the new tradeline opening and evaluated the delinquency rates of those new trades with 12-17 months of performance through August 2010.
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