Sunday, August 07, 2005
Editorial: Target mortgage scams
As housing prices soar, scam artists feast on homeowners' equity like wolves savaging sheep. Consumers need tougher regulations.
From the RoundTable blog
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Depression-era crook Willie Sutton explained, when asked, why he robbed banks: "Because that's where the money is."
Today, "the money" is in people's homes -- not stuffed in mattresses or buried in cellars, but in the equity people have built up, or just hope to build up as renters scramble to realize the "American dream."
Today's crooks are robbing people of their dreams of homeownership, their home equity and sometimes their homes outright.
The Washington Post reported recently that superheated housing markets such as New York and Washington are rife with mortgage scams. But the human vermin who feed on the desperate and the naive have swarmed into the less pricey markets of Southwest Virginia, too.
People facing foreclosure on their mortgages, for just one example, are telling the Legal Aid Society of Roanoke Valley that they are being bombarded with offers from people who want to "help."
Debtors: Beware, beware. The "rescue" business is the latest twist on predatory lending practices that cost homebuyers unnecessary fees or saddle them with onerous interest payments, or both, sometimes assuring foreclosures that might have been avoided with legitimate advice.
Cruelest of all, perhaps, some "rescuers" assure trusting homeowners that if they will sign over their deeds -- "temporarily," of course -- someone with a better credit rating will be able to secure new financing and prevent the loss of their homes.
"But the terms of these deals are almost invariably so onerous that the buyback becomes impossible," the National Consumer Law Center reports, "the homeowner permanently loses possession, and the 'rescuers' walk off with all or most of the home's equity."
Scam artists have put families out of their houses, or have "kindly" allowed them to buy back their homes at vastly inflated prices, entering into rent-to-own schemes with rents sometimes higher than the previous mortgage payments. Any wealth the erstwhile homeowners had built, from years of payments or rising home values, the crooks swallow up.
The public's first line of defense against the unscrupulous and ruthless is, as always, skepticism. But the growing pervasiveness and complexity of these mortgage scams demand a tightening of the loose regulatory standards so in vogue today.
Henry Woodward, the valley Legal Aid Society's general counsel, explains that the mortgage "rescue" business builds on reliable old standbys of the unscrupulous lending game: fly-by-night rent-to-own and option-to-purchase schemes. "Virginia law doesn't regulate this stuff at all."
As predatory schemes proliferate, the need for regulation becomes all the more urgent. Rules should at least protect a seller's equity in sale and lease-back transactions, for example. And sellers who lose their homes in unscrupulous refinancing schemes should have time -- perhaps 90 days -- to arrange legitimate refinancing and buy their houses back for no more than the investment their "rescuers" made.
Lawmakers can't make predators fair or the credulous skeptical. They can, however, write laws that guard the interests of the lambs against those of the wolves.
Mortgage fraud is booming right along with the price of houses, and elderly homeowners with lots of equity are prime targets. Virginia legislators should act. Anybody's parents could be the next to be fleeced.
