Subprime crisis exposes mortgage scams

MIAMI (Reuters) - Gabriellee Cunningham had fallen behind on the mortgage on her modest suburban Miami home and was mired in debt when she was approached in June by a door-to-door "mortgage lender" who promised to help her.

Nine months later, her $89,000 mortgage has ballooned into a $234,000 loan, her monthly payments have doubled and she faces foreclosure on a house she no longer owns.

Housing officials call Cunningham the victim of one of the worst cases of predatory lending they've ever seen and warn, as the U.S. subprime mortgage crisis grows, of a rising tide of scams in which homeowners are being cheated out of their home equity.

"I know I did something stupid but I am going to fight these people 'til my last breath because they are trying to rob me," said Cunningham, 48, who works at three jobs. She says she fell behind on her payments while trying to fund college educations for two daughters.

Consumer advocates have seen a surge in "foreclosure rescue" and "equity stripping" scams in recent months as the subprime mortgage crisis developed.

Lenders launched foreclosure actions against more than one in every 200 mortgage borrowers in the fourth quarter of 2006, according to a Mortgage Bankers Association survey that hammered equity markets this month.

That figure was the highest in the association's history. Subprime adjustable-rate mortgage delinquencies jumped to nearly 14.5 percent in the quarter.

CRISIS JUST BEGINNING?

Florida is among the states hardest hit by the crisis, which some advocates believe is in its infancy. Florida ranks second to California in the percentage of subprime loans, or loans granted to people with poor credit histories, many of whom are finding they can't make their payments.

By some estimates, up to 30 percent of loans in Miami, a metropolitan area with large poor and immigrant populations, are subprime.

The non-profit National Consumer Law Center said no one tracks the number of people trapped by mortgage scams but it agrees with the views of lawyers and consumer agencies that loan scams, which routinely target the poor and minorities, have proliferated with rising property values.

Jeffrey Hearne, a lawyer with Legal Services of Greater Miami, said his office saw few cases until two years ago but now has two dozen and sees one or two new ones each week.

"We are having to turn them away," he said.

Cunningham said she was panicked about her finances when a sweet-talking lender knocked on her door. He promised to refinance her house and relieve her of mortgage payments for a year to allow her to catch her breath.

Cunningham said the scam artists used race and religion to lure her -- "affinity marketing" tactics that experts say are typical.

"They sent a black guy. I'm black," Cunningham said. "He said he was a Christian. I'm a Christian."

The result: Cunningham says her mortgage, an $89,000 loan at 8.5 percent when she bought the home in 2000, is now a $234,000 loan at 11 percent. Monthly payments have gone from $1,038 to $2,275. And her name is no longer on the title.

"How do you think I'm going to pay $2,275 if I fell behind at $1,038?" she said. "I'm afraid I don't even own my home anymore. I'll be homeless."

PREDATORY LENDING

Attempts to track down the company that talked Cunningham out of her home have been unsuccessful and state prosecutors may get involved, said Ryan Neubauer of the Miami-Dade Housing Finance Authority.

"It's one of the clearest cases of predatory lending we've seen," he said. "She was basically convinced to sign over title to her home."

Typically, the con-men pounce when a homeowner faces foreclosure. In some instances, borrowers are asked to sign over title but told they can buy it back. In others, they are told the scam artist will pay off and refinance the mortgage.

"We have that combination of people behind in their mortgages who have equity in their property," said NCLC attorney Lauren Saunders. The equity makes them attractive targets for cons.

At least 12 states -- California, Colorado, Georgia, Illinois, Maryland, Michigan, Minnesota, Missouri, New York, Washington, Florida and Rhode Island -- have passed consumer protection laws against foreclosure scams.

But Saunders said the laws do not carry blanket protections and cannot guard against scammers who quickly flip a property and make off with the cash.

"If you're signing away your home you're signing away your home," she said. "Don't expect to ever get it back."