Obama, Durbin Introduce Bill to Fight Mortgage Fraud and Abuse
On the heels of reports that the housing market experienced its worst sales-month in 18 years and foreclosures are up 47% compared to last year, Senators Barack Obama (D-IL) and Dick Durbin (D-IL) today reintroduced the STOP FRAUD Act, legislation that combats mortgage fraud and abuse. In less than five years, there has been a 137 percent increase in the number of cases of mortgage fraud and abuse being investigated by the FBI.
"Mortgage fraud and abuse are costing thousands of Americans their hard-earned life savings and their dream of homeownership," said Senator Obama. "As the number of foreclosures skyrocket and the housing market becomes more vulnerable, we must establish stiff penalties to deter fraud and protect consumers against abusive lending practices."
"Mortgage fraud is a growing problem across the country," said Senator Durbin. "Too many people in my home state of Illinois have been victims of abusive, misleading, and confusing lending practices. It is time that legislators step forward with a federal definition of mortgage fraud. The STOP FRAUD Act not only authorizes strict penalties to those who violate this definition but also empowers consumers with the tools they need to make informed decisions."
The STOP FRAUD Act, which is aimed at stopping mortgage transactions that promote fraud, risk, abuse and underdevelopment, will provide the first federal definition of mortgage fraud and authorize stiff criminal penalties against fraudsters. STOP FRAUD requires a wide range of mortgage professionals to report suspected fraudulent activity, and gives these same professionals safe harbor from liability when they report suspicious incidents. It also authorizes several grant programs to help state and local law enforcement fight fraud, provide the mortgage industry with updates on fraud trends, and further support the Departments of Treasury, Justice and Housing and Urban Development's fraud-fighting efforts.
At a time when many homeowners are concerned about losing their home to foreclosure, and policymakers are worried about fraudulent, deceptive, and confusing lending practices that are roiling communities across the country, STOP FRAUD provides $25 million for housing counseling. The Department of Housing and Urban Development will contract with public or private organization to provide information, advice, counseling, and technical assistance to tenants, homeowners, and other consumers with respect to mortgage fraud and other activities that are likely to increase the risk of foreclosure.
The Act also protects the legal rights of borrowers with risky, subprime loans. The greatest growth in the mortgage lending market is in subprime loans and some have estimated that more than 2 million homeowners with subprime mortgages are at risk of losing their homes. If a borrower receives a subprime mortgage with any one of several high-risk characteristics, the Act protects the rights of borrowers to challenge lending practices in foreclosure proceedings. The high-risk characteristics targeted by this Act include loans for which the borrower does not have the ability to repay at the maximum rate of interest, loans whose true long-term costs are not clearly disclosed to the borrower, stated-income and no-documentation loans, and loans with unreasonable prepayment penalties.