AG Coakley Testifies Before Congress on Predatory Lending Impact on Massachusetts
Testifies in Support of Amended Version of H.R. 1231 – A Bill Aimed at Combating Foreclosure Relief Scams; Full Testimony Included Below
WASHINGTON – Today, Massachusetts Attorney General Martha Coakley testified before the House Financial Services Committee’s Subcommittee on Housing and Community Opportunity regarding her office’s efforts to combat predatory lending practices, including protecting consumers from foreclosure rescue schemes. The Committee, chaired by California Congresswoman Maxine Waters, held a hearing today in Washington, D.C., on HR 1231, which is aimed at addressing loan modification and foreclosure relief scams. The Attorney General was invited to testify by Chairwoman Waters.
“As the foreclosure crisis has spread, our office has seen an increase in unfair and deceptive conduct targeting homeowners desperate to save their homes from foreclosure,” said Attorney General Coakley. “In response, we issued regulations prohibiting certain fraudulent activities and brought several enforcement actions against individuals and companies preying upon desperate homeowners. Each week, however, our office learns of new scams stemming from the foreclosure crisis, many of them coming from outside of the state. As a result, federal legislation will greatly aid in stopping those who seek to take advantage of homeowners who are in dire financial straits.”
The Attorney General’s testimony outlines the office’s experiences in protecting consumers from foreclosure rescue schemes and how fraudulent activity engaged in by unscrupulous individuals trying to capitalize on the foreclosure crisis generally falls into two categories:
- Scams aimed at attempting to convince desperate homeowners to transfer the ownership interests in their homes;
- Scams that charge upfront fees with faulty promises to help homeowners obtain loan modifications.
The Attorney General also voiced her support for the amended version of H.R. 1231 sponsored by Congresswoman Gwen Moore, testifying that it would help protect homeowners from the types of foreclosure rescue fraud her office has seen first hand. Specifically, the amendment:
- Prohibits foreclosure rescue consultants from acquiring an interest in the residence of a homeowner with whom the foreclosure consultant has contracted;
- Outlaws the collection of advance fees by requiring foreclosure consultants to perform their services before they can demand or collect a fee;
- Prohibits collection of a fee if the end result of the service is that the homeowner’s monthly mortgage payment has increased.
The Attorney General also recommended that the amendment be further revised to lower a proposed cap on fees that foreclosure consultants may charge, and noted the critical authority the legislation gives to states to bring a law enforcement action under federal law or to enforce state laws which provide equal or greater protection.
In June 2007, the Attorney General’s Office issued emergency regulations, which became final in August 2007 which prohibits for-profit foreclosure rescue schemes. The regulations also prohibit the solicitation or acceptance of an advance fee in connection with offering or providing services to help a homeowner avoid foreclosure, and the advertisement of foreclosure rescue services without clearly and conspicuously disclosing the precise services offered by the promoter and how the promoter will assist persons to avoid foreclosure. The office has brought several successful enforcement actions under the regulations. Nonetheless, the office continues to learn of new parties making solicitations to Massachusetts homeowners promising relief from foreclosure, and many of them come from outside of Massachusetts. Federal legislation will provide yet another tool to combat these scams on a nationwide scale.
Since 2007, the Attorney General’s Office has sought accountability through litigation, regulation and other advocacy. On the enforcement side, the office has brought predatory lending cases against two major subprime lenders, Fremont Investment & Loan/Fremont General and H&R Block/Option One Mortgage Corporation. The office has also brought enforcement actions against mortgage professionals who engaged in loan application fraud and other loan origination misconduct. On the regulatory side, the Attorney General’s Office enacted regulations to prevent predatory lending and worked together with the Massachusetts Division of Banks for the enactment of legislation that provides additional protections for borrowers facing foreclosure. These new regulations went into effect in January 2008, and govern the mortgage brokers and mortgage lenders in Massachusetts. Upon enactment of these regulations, the Attorney General’s Office has brought several enforcement actions against companies and individuals who were preying on homeowners facing foreclosure by engaging in conduct prohibited by the Massachusetts regulations.
The House Financial Services Committee Hearing was held today in the Rayburn House Office Building in Washington, D.C. The Committee will also hear testimony from the Federal Trade Commission, the U.S. Department of the Treasury, the National Consumer Law Center, the Mortgage Bankers Association, the National Association of Realtors and the State Bar of California.
To view the complete text of the Attorney General's testimony:
- Testimony of Attorney General Coakley to the Committee on Financial Services Subcommittee on Housing and Community Opportunity: Foreclosure Rescue Fraud Legislation is Vital to the Protection of Vulnerable Homeowners (PDF)