Tens of thousands of American homeowners having trouble making their mortgage payments are being targeted by questionable "loan modification" companies, an ABC News investigation has found.
"This is a growing problem, and homeowners must be aware that the crooks are out there," Jon Leibowitz, chairman of the Federal Trade Commission (FTC), told ABC News.
According to the FTC, loan modification schemes collect thousands of dollars in advance from desperate homeowners while providing little or no help with their lenders.
Pennsylvania Ave. Maildrop
One loan modification firm that ABC News has learned is currently under federal investigation is Nations Housing Modification Center (NHMC), which boasts a prestigious Capitol Hill address, right on 611 Pennsylvania Avenue in Washington, D.C. According to NHMC's mail solicitation, the company's staff of "attorneys, forensic accountants and lender specific negotiators" could help homeowners lower the principal on their loans and reduce their mortgage rates "as low as 2%."
However, ABC News found that the Pennsylvania Avenue address for the firm is really a mailbox at a UPS Store in D.C. NHMC is actually located in a nondescript office building in San Marcos, CA, where, as part of a "boiler room" operation, telemarketers read from a script tailored for anxious homeowners, according to a former Nations employee-turned-whistleblower.
"They're convincing people to give them money to them in advance, promising to do something that they're not doing, that they don't even have the resources, capabilities, knowledge or manpower to do," said Tom Fatica, who says he was fired after he began to question the absence of the lawyers and accountants who were supposedly hired to help the homeowners. "How can you modify 500 loans with two clerical people that probably never talked to the bank before?"
Fatica is now contacting his former customers at NHMC to warn them that they are being duped by the firm.
"I thought I was helping people save their houses and then it turned into a nightmare where I was helping those guys steal money from people that barely could afford to give it to them," said Fatica.
Chad Nickless of Renton, WA, said he was convinced of NHMC's authenticity after he received its mailer with the Pennsylvania Avenue address. "With Obama being on the news about modifications, I thought 'ok,' maybe these guys have a better in with what's going on," Nickless told ABC News.
Nickless sent $1000 to NHMC after a company representative said its experts could help him avoid foreclosure. However, he quickly cut ties with the firm after he says he discovered that it took an additional $2000 from his banking account without his authorization and before it had done anything on his behalf.
"I don't think they are legitimate, I think they are taking advantage," said Nickless. "When you're afraid to lose your house and possibly company, you're gonna grasp at straws, and they seemed like somebody that could help."
Nations Housing Modification Center's website actually features an ABC News Nightline report by the Brian Ross Unit on the difficulties facing homeowners trying to modify their loans. The website also showcases testimonials from supposedly satisfied customers, such as "Lilian" from Hawaii who wrote that the company brought her interest rate down from 7.3 percent to 5.2 percent and saved her over $400 dollars a month in housing payments. However, when ABC News contacted "Lilian," she said she never wrote the testimonial and was extremely unhappy with NHMC because the company had done nothing to modify her loan and she was now on the verge of foreclosure.
ABC News has also learned that three of the men running NHMC are well known to law enforcement authorities for their previous activities. Company officials Bryan Rosenberg and Glenn Rosofsky were convicted by federal prosecutors in 2003 of charges connected to a mortgage fraud scheme in Baltimore. Both men received jail sentences for their role in the fraud.
"They pled guilty to a scheme that caused losses of between one-and-a-half and two-and-a-half million dollars at the time," said Dale Kelberman, a former Assistant U.S. Attorney who prosecuted the case. "They have demonstrated in the past that they are not reliable, that they have deceived others in the past, involving real estate transactions, and so I would not give them a lot of credibility," said Kelberman, now an attorney with the Baltimore firm Miles & Stockbridge.
Michael Trap, the president of Nations Housing Modification Center, also has a criminal past. In 2003, Trap pleaded guilty to lying to a federal grand jury in connection with the PinnFund scandal, the largest Ponzi scheme in San Diego history.
When confronted by San Diego affiliate 10News, Trapp refused to answer questions and ordered the cameras out of the building. Click here to view the 10News report.
Late today, NHMC called in a large industrial shredding truck to their offices and was busy destroying boxes of documents.
According to the FTC, homeowners should be wary of any firm that demands an advance fee, guarantees to stop a foreclosure or modify a loan or advises the homeowner to stop paying their loans. The FTC encourages homeowners to contact their lenders directly and ask for a loan modification, and if they require further assistance, they should contact a non-profit, government-affiliated entity such as the Hope Now Alliance.
"The truth of the matter is, there are just a lot of malefactors out there that are using this time of economic distress to go after consumers," said FTC commissioner Leibowitz. "They promise them a lifeline, but they give them only an anchor instead. "
On Thursday, Senate Banking Committee chairman Christopher Dodd (D-CT) called on the Treasury Department to investigate alleged abuses by loan modification companies.
This story has been updated.