Government Lending

HUD OIG warns of COVID-19 fraud schemes

A HUD OIG spokesperson said they hope to make borrowers aware of pandemic and other common fraud schemes

In a flurry of announcements this week, the Department of Housing and Urban Development Office of Inspector General warned borrowers to be on the lookout for fraudulent schemes.

In four bulletins, the government watchdog warned borrowers of loan modification and foreclosure schemes, outlined scams that could impact reverse mortgage borrowers and said that renters, too, can be targeted by nefarious players.

According to a HUD OIG spokesperson, their goal in publishing these bulletins is to make sure that borrowers are aware of the most common fraud schemes, both as it relates to the pandemic and other common fraud schemes.

The IG did not explain in its multiple bulletins whether these schemes have been on the rise, but urged borrowers to reach out if they have fallen prey to any fraudulent activity. But a spokesperson said the frequency of schemes is enough for the public to be alerted.

“The prevalence of these schemes happen often enough that we believe the public should be made aware of them,” the IG spokesperson said.

The fraud-prevention outreach comes as the Biden administration intensifies its efforts to curb pandemic-related fraud. In May 2021, the U.S. Attorney General announced the creation of a COVID-19 fraud enforcement task force. President Biden said during his state of the union address that a chief prosecutor would be appointed to lead a group of specialized prosecutors and agents focused on pandemic fraud.

The White House also plans to provide more resources for the DOJ task force to prosecute egregious pandemic fraud.

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In one of the bulletins, the watchdog listed seven potential schemes that a borrower in financial distress could fall victim to, including a fake government modification scheme, rent-to-own scheme, and foreclosure and bankruptcy schemes.

Per the inspector general’s bulletin, borrowers should be wary of fraudsters offering to negotiate a refinance for an upfront fee.

The bulletin explains that fraudsters will typically pocket the fee and file a bankruptcy in the borrower’s name without their knowledge. The IG said that one indicator of this scheme is a sharp decline in calls from creditors.

HUD’s watchdog also warned of phony foreclosure-rescue schemes where a fraudster advises a borrower to make mortgage payments directly to them and promises to negotiate with a lender on the borrower’s behalf.

In another bulletin, the IG warned borrowers that HUD does not initiate contact with individuals about its assistance. The watchdog urged borrowers to be wary of someone who promises to stop an eviction for a fee.

The inspector general also listed out common schemes that could impact reverse mortgage borrowers, and said that older adults should not sign anything they do not understand. HUD’s home equity conversion mortgage program accounts for most of the reverse mortgage market.

The IG issued these bulletins a few days after the Federal Housing Administration released its January 2022 credit risk report, which showed that 58,512 FHA properties were in foreclosure.  

Though the report shows that FHA properties in foreclosure have declined from a high of 132,560 in December 2021, foreclosures continue to be at higher levels than when the foreclosure moratorium was in place. In July 2020 there were a mere 20,737 properties in foreclosure. And many in the industry believe that this number will continue to rise.

The rate of seriously delinquent loans also fell in the month of January 2022 to a non-seasonally adjusted rate of 6.81%, down from 7.28% in December 2021.

The IG also advised borrowers to use caution when discussing loan rescue plans offered by individuals, especially when they appear too good to be true. The watchdog urged borrowers to not pay upfront fees, sign any documents giving up the title to a property or pay for a forensic audit.  

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