BREAKING NEWS
July 3, 2007
Scheme Preys on Desperate Homeowners
With the housing market in decline, financial predators are finding yet another way to take advantage of people who fall behind on their payments.
The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash. And, almost always, the homeowners still end up losing their homes.
There are no nationwide numbers on this common fraud, known as equity stripping, but it has turned up in almost every state. Seven states have passed laws to try to stop it. Still, with foreclosure rates rising rapidly, it will be a growing problem, consumer advocates say.
“Conditions now are perfect for these scams,” said Lauren K. Saunders, managing attorney at the National Consumer Law Center in Washington. “We are at the end of a period of rising real estate prices, so a lot of people have equity in their homes. But we also have a foreclosure crisis.”
Foreclosure rescue deals vary in execution but they capitalize on two things: borrower desperation and mind-bogglingly complex mortgage loan documents. A study published last month by the Federal Trade Commission found that the documents were so confusing that 9 of 10 borrowers could not identify upfront fees on mortgage loans and half could not specify the amount they were borrowing. Sam Finkelstein, an advocate for affordable housing, has encountered several variations of foreclosure rescue schemes. One program offered by RYM Technology Holdings, which is based in Birmingham, Mich., lured at least 20 struggling local homeowners and as many as 40 other people in Chicago, said Mr. Finkelstein, who is a housing organizer at the National Training and Information Center, a nonprofit group based in Chicago that supports housing groups around the country.
The New York Times |
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Rise in Hard Time Signals Harder Times for Housing
By: Pete Kendall, July 3, 2007 |
When the trend of increasing prosperity stops, [historian Charles] Kindleberger says, fraudulent exploitation only “increases further.” A study of history’s great manias shows that once the top is in, tight credit and falling prices will intensify the urge, and simultaneously the need by many people in financial trouble, to strike it rich.
The Elliott Wave Theorist, July 1996 |
This is an important article because in addition to illustrating the start of phase II of the recrimination wave, by which fraudulent exploitation only “increases further” when “prosperity stops,” it gives an idea of the sizable delay that takes place between the time homeowners start to experience stress and the time that they actually go into foreclosure. “It’s amazing to me how these people sit at a computer and just rob you,” says a women who signed up with a mortgage “refinancing” outfit in August 2005, after she fell behind on her mortgage. “I want everyone who did it in jail with the bubbas and the brothers.” She went into foreclosure in May 2006. That’s 10 months from re-finance to default; but the homeowner struggled for a while before refinancing; so it was at least a year from struggling to keep her head above water to going under.
With the number of mortgage re-sets building toward a climax, some say the situation is under control. The delay on this 2006 foreclosure suggests otherwise. Since most mortgage re-sets are just now approaching higher levels that sets future foreclosures in motion, maximum fallout from resets is still at least a year away. So, the housing vice will tighten further as the backlash against mortgage fraud expands, credit tightens further and sales and prices fall; so goes the “downward spiral” covered in Chapter 16 of Conquer the Crash.
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