Government officials say scammers are seeking to take advantage of borrowers in danger of default by charging them upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.
The frauds often involve companies with official-sounding names designed to make borrowers think they are using the Obama administration's efforts to help modify or refinance 7 million to 9 million mortgages.
Officials say such operations almost always are fraudulent, and that help is available for free from government-approved housing counselors.
"These predatory scams callously rob Americans of their savings and potentially their homes," Treasury Secretary Timothy Geithner said. "We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar."
The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements. The agency also said it filed three new complaints against Northridge, Calif.-based Federal Loan Modification Law Center LLP, Newport Beach, Calif.-based Bailout.hud-gov.us, and Clearwater, Fla.-based Home Assure LLC, and the operators of those companies.
The FTC last month filed cases against two other companies: Hope Now Modifications LLC and New Hope Modifications LLC.
Attorney General Eric Holder says the FBI is investigating about 2,100 mortgage fraud cases, a 400 percent increase from five years ago.
"If you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you," Holder said.
Over the past year homeowners have been flooding state attorneys general with complaints about for-profit loan modification consultants. While some are legitimate, authorities say many are con artists.
"Stay away from anyone who says they will save your home in return for money up front," Illinois Attorney General Lisa Madigan told reporters in Washington. Such claims, she said, "are almost always scams."
Homeowners do not have to pay anything to participate in the administration's Making Home Affordable program, which seeks to prevent foreclosures by making mortgages affordable through refinancing or modified terms.
Other signs of a mortgage scam, according to the FTC are: promises to stop foreclosure or modify a loan; guarantees that your home will be saved and claims of a "97 percent success rate;" and use of official-sounding names.
Roadside billboards in places like Las Vegas scream, "Save my property!" and radio ads promise "expert help." Some companies comb property records and send mail designed to look like it is from the homeowner's lender.
Some of those making the offers to help are former brokers, agents and appraisers who've seen their previous business evaporate. But it's difficult to gauge if even the legitimate consultants are more effective than nonprofit credit counselors who also work with lenders at no charge.
Some states recently have toughened penalties for perpetrating foreclosure scams, and some prosecutors have used existing fraud statutes to bring criminal charges. But many state prosecutors have not filed criminal cases, instead proceeding with civil lawsuits.
Homeowners can locate free housing counselors at www.makinghomeaffordable.gov or by calling (888) 995-HOPE.