Fraud Enforcement and Recovery Act

Mr. Merkley:

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

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.