An old adage states that there's a sucker born every minute. Today's inquiries: How many borrowers in default or foreclosure are suckers? More pertinently, How can mortgage servicers protect these suckers?
Eliciting these questions is the compelling case of Charles Head, a Los Angeles scam artist who federal authorities say allegedly targeted ‘homeowners in dire financial straits’ and robbed them of the titles to their homes and millions of dollars.
This week, U.S. Attorney McGregor Scott of Sacramento, the FBI and Internal Revenue Service announced a huge indictment against Head and 18 co-conspirators following the completion of ‘Operation Homewrecker.’ According to authorities, a foreclosure-rescue scam was at the core of the group's nefarious activities.
Between 2004 and 2006, the defendants reached out to borrowers who were on the ropes. They enticed a homeowner with a bailout option, whereby an ‘investor’ was added to the home's title, and the homeowner paid rent to that investor while the borrower repaired his credit.
Of course, it didn't work that way. The investor in the alleged scheme was a co-conspirator.
‘Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home,’ authorities say. ‘The defendants would then share the proceeds of the ill-gotten equity and 'rent' being paid by the victim homeowner. When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without the home, equity or repaired credit.’
Is it regrettable that 47 homeowners were victimized? Yes. Are these 47 homeowners suckers? Yes. Granted, their desperation made them vulnerable to the fraudsters. However, another old adage is also applicable here: If something sounds too good to be true, it probably is.
But let us set aside fraud, criminals and the preceding seemingly cynical viewpoint. Let us turn instead to what the case says about loss mitigation: Head and his co-conspirators effectively contacted and worked with borrowers. Although the motive was malignant, scammers – not servicers – made headway.
Of course, the details of each borrower's experience are unknown. It's certainly possible that every borrower's servicer made contact. But should we assume that none of the 47 borrowers was situated for a loan workout? Isn't it more likely that the fraudsters were simply more diligent and, thus, successful?
The point is this: Some people are suckers, and they can get taken for a ride. To deny this fact is to be dishonest with ourselves. Perhaps the mortgage servicing industry should be honest with itself. There are scammers seeking to take advantage of your borrowers, and recognizing this risk is a first step in protecting homeownership – and your bottom line.
As a second step, assess your borrower outreach and loss mitigation efforts. Has your operation set solid foundations with borrowers, to the point where they know that your company is the only entity that can truly help them out of a jam?
This is a message that should be communicated widely and loudly, particularly given today's default and foreclosure environment – which is far worse than it was between 2004 and 2006, when Head and his crew allegedly prowled for victims.