Wednesday, April 22, 2009
Mr. President, I rise to speak in strong support of the underlying bill, the Fraud Enforcement and Recovery Act of 2009, and in particular about its impact on detecting fraud in the housing industry. First, however, let me offer my appreciation to the senior Senator from Vermont for bringing forward this important piece of legislation for our consideration. We all know the grave nature of the economic crisis we are in. Oregon has been hit particularly hard. The unemployment rate in Oregon is 12.1 percent. It has nearly doubled in just over 6 months, the second highest unemployment rate in the Nation. Oregonians are going into foreclosure at record rates. This legislation, by giving law enforcement additional tools, will help stop the bleeding and begin the process of addressing an underlying problem that caused this crisis, deceptive practices in the mortgage industry.
The bill before us today is straightforward but important. It gives the Government the extra tools and resources it needs to combat, identify, and prosecute financial fraud. As the Federal Government spends billions to bring stability to the economy, the modest amount of money authorized in this bill will go a long way to protect our investments and return money to the taxpayer.
Let me highlight just how important this effort is in the area of housing. A lot of attention has been paid to the rising number of foreclosures and the havoc these foreclosures are wreaking on the housing market. But not so much attention has been paid to the role fraud has played in causing these foreclosures.
Just last month, HUD’s interim report on the root causes of the foreclosure crisis found that 1 in 10 delinquencies in this crisis has been associated with some form of fraud. That means this week alone 5,000 families will lose their homes to foreclosure as a result of fraud. That is 5,000 families too many.
Mortgage fraud is at an all-time high. The Mortgage Asset Research Institute has found that mortgage fraud increased by 26 percent from 2007 to 2008. Sadly, this number is only growing as new schemes come forward seeking to defraud Americans of the financial foundation of their future.
Let me give a couple of examples. In one widespread fraud, buyers with stolen identities bought homes. If the value of the homes went up, they sold the homes and cashed in. If the value of the homes went down, they walked away, leaving not only a vacant home but leaving the unsuspecting victim of identity theft in a very difficult situation.
In another case identified by HUD, defrauders inflated home values through bogus appraisals, fabricated borrowed deposit amounts, falsified loan documents to obtain FHA-insured mortgages, and HUD lost $2.3 million on just 30 mortgages. Over 9,000 FHA loans have entered into default after no or only one payment, a particular sign of fraud.
HUD’s inspector general has done much to address this. The office captured $2 billion in questionable expenses, obtained $80 million in restitution money, and closed over 1,000 cases. That is a significant effort. But it is only the tip of the iceberg. That is why this fraud act we are considering today is so important. It takes a significant step in restoring an investigative unit that was largely dismantled in 2003 under the Bush administration. It expands the inspector general’s staff. It takes an important step to restore investigative capabilities which are so important to protecting the vital nature of the American housing market. In these extraordinary economic times, we need to be especially vigilant against new forms of fraud.
I am thinking now of the predatory foreclosure scams that so many of my Oregon constituents have been talking about. These scams engage in deeply deceptive practices and sometimes outright fraud. The worst of these schemes falsely promised homeowners a way out of foreclosure if they put up a small fee of several thousand dollars. In one such scam–I will call the couple John and Mary who were affected. They are 70 years old and 66 years old, respectively, hard-working Oregonians. John is a self-employed trucker. Most of his business is generated from hauling debris from the demolition of houses. His business has declined with the fall-off of new construction.
In the course of things, John and Mary struggled to keep up their mortgage payments. They reached out to their servicer–at the time it was Countrywide–to explore their options but couldn’t connect and get anyone to work with them on their mortgage. But telemarketers started calling with offers to help them modify their mortgage for $2,000 or $3,000. It is fortunate that John and Mary didn’t sign any of these contracts but instead contacted my office. We connected them with a HUD-approved housing counselor who was able to help them modify their loan and get back on a straight path.
Let me tell my colleagues what might have happened; that is, a scam in which not only is the family facing foreclosure asked to put up a fee, but they are asked to sign over their house to the firm, and then they are converted into being a renter. When they miss a rent payment, they are evicted from their house. So not only do they lose their investment, they lose a place to live. They can go from a homeowner in slight trouble to homeless in short order.
These scams are unacceptable. It is our job to step forward and protect the American people. We must fireproof our mortgage lending business and ban deceptive and risky practices. In the coming days, I and others will be offering and working on legislation to reestablish sound practices in the mortgage finance markets. But today we consider a significant act that empowers our officials to lay down a firebreak against the most blatant forms of fraud. I encourage colleagues to support it. It is an important step. Let’s work together to protect American homeowners.