Federal and state representatives met in Washington on Thursday to discuss cracking down on mortgage foreclosure rescue and loan modification scams.  At the same time, the Federal Trade Commission (FTC) announced is had filed charges against two companies alleged to have defrauded homeowners through such schemes. 

The FTC announced the legal action at a conference convened by the U.S. Departments of Treasury and Housing and Urban Development (HUD), Financial Crimes Enforcement Network (FinCen) and the FTC and attended by attorneys general from 12 states.   

The joint conference was called to discuss emerging trends and proactive strategies to combat fraud against consumers in the housing market and how state and federal agencies can best improve coordination to fight it.  The conference was a follow-up to an announcement by the Obama Administration several months ago of a multi-agency crackdown on attempts to prey on distressed homeowners.

Treasury Secretary Tim Geithner said 'A clear lesson of this financial crisis is that American consumers need better protection against fraud.  And while we will prosecute anyone who violated the law, going forward we will not wait for problems to peak before we respond."

Connecticut Attorney General Richard Blumenthal called mortgage rescue schemes "an epidemic - preying on families facing foreclosure in exploding numbers.  These...scams raise false hopes and then cruelly exploit them."

Attendees discussed the types and patterns of predatory practices they called "rampant" in the wake of the current financial crisis and specifically mentioned "many fraudulent television ads that run on prominent networks promising simple solutions to complex financial problems"

A particular focus of the meeting was upfront fees that are charged by predators in order to assist homeowners to stop foreclosure. 

The agency heads also said they were warning lending institutions which are often at the forefront of both loan modification and foreclosure efforts to be alert to such schemes.

With concerns about scams growing, FTC Chairman Jon Leibowitz said his agency would consider stricter rules to cover all aspects of the "mortgage life cycle" from fees and advertising to appraisals and servicing.  Under consideration, he said, was a federal ban on upfront fees for mortgage modifications services.  Several states already have banned such fees.

Illinois Attorney General Lisa Madigan said 'If you're asked to pay an upfront fee, that's a sure sign you're dealing with a scavenger whose only goal is to con you out of money you can't afford to lose, and who will ultimately rob you of any opportunity to save your home with the help of legitimate organizations."

Leibowitz also announced that the FTC had filed complaints in the U.S. District Court for the District of Columbia on Wednesday against Federal Housing Modification Department, Inc., doing business as both Nations Housing Modification Center and Loan Modification Reform Association; and Infinity Group Services.  These complaints mark the 21^st and 22^nd actions brought by FTC against similar companies.

In the complaints the FTC alleged that the defendants falsely claimed that they would obtain a mortgage modification in "virtually all cases."  After charging homeowners large up-front fees -$3,000 in at least one case - the defendants did little or nothing to assist the homeowners in saving their homes from foreclosure.  In some cases the defendants demanded additional fees, as much as $15,000, once they had been hired by the homeowners.

Leibowitz said that, in addition to rule making proceedings, the agency has also launched new initiatives to educate consumers on avoiding these scams.

States represented by attorneys general either in person or by phone were Connecticut, Illinois, Iowa, Maryland, Missouri, Nevada, North Carolina, Arkansas, Arizona, Rhode Island, Ohio and Washington.