While mortgage fraud and mortgage relief fraud have been prevalent in the isles for some time, Hawaii’s Better Business Bureau is bracing for a rush of new scammers attempting to take advantage of confusion surrounding this month’s implementation of a new Home Affordable Refinance Program.

Changes to the HARP program, which were announced by President Barack Obama in October and became effective Dec. 1, are designed to help struggling homeowners refinance underwater mortgages. However, the BBB warns that along with legitimate banks and mortgage companies, scammers are gearing up to take applications.

"Whenever there is a new or updated government program that may be a bit confusing, scammers come out of the woodwork to take advantage of that confusion," said Katherine Hutt, spokeswoman for the Council of Better Business Bureaus. "There are already hundreds of websites claiming to be able to help homeowners through the HARP process, but many of them are rip-offs and scams."

HARP-related scams would only be the latest in a series of mortgage-related frauds to affect Hawaii residents, said Tim Caminos, Hawaii BBB spokesman. In the past four months, forensic loan audits and upfront money scams were prevalent in the isles, he said.

Forensic loan auditors argue that their services, which range from hundreds to thousands of dollars, can help delinquent homeowners stay in their houses.

However, agencies like the Federal Trade Commission, the Federal Bureau of Investigation, the Better Business Bureau and the Hawaii Office of Consumer Protection, Department of Commerce and Consumer Affairs increasingly have viewed forensic loan audits as the latest foreclosure rescue scam to exploit financially strapped homeowners.

Kauai homeowner Paul Gantt is just one of many Hawaii homeowners thought to have been duped by forensic loan audit scams. Gantt paid $900 to Ted Ulan, a forensic loan auditor who said that he worked with St. John’s Mortgage Recovery Community Development Corps, a nonprofit ministry affiliated with a Passaic, N.J., church.

"I took (the documents) to a lawyer friend of mine, and he said (they were) useless," he said.

Worse yet, the Rev. William Thiele, pastor of St. John’s Church, said the nonprofit had closed on Feb. 11 and was unaware that Ulan was working in Hawaii.

"I’ve seen about 75 client files, and I can tell you that there’s never been any Gantt in our system," Thiele said.

The church dissociated itself from Ulan after discovering that he had incorporated a nonprofit of the same name in Emporia, Kan., and at the same address as his for-profit business, First Kansas Financial LLC, he said.

The Star-Advertiser tried to contact Ulan for an update last week on the phone number associated with his Kansas-based St. John’s Mortgage Recovery CDC, but the number had been disconnected. Likewise, the websites associated with both of his businesses have been removed, as has a YouTube video of him giving a speech to some 700 people at a Financial Empowerment Forum at Christ Church in Rockaway, N.J.

Ulan did respond to an email request from the Star-Advertiser on Dec. 13 saying that he would be in contact, but he failed to call. On Dec. 15 he called Gantt for the first time in months.

"He wanted to know if I had more work for him," Gantt said.

This time around, Gantt declined. Still, mortgage relief scams are a rising problem in Hawaii as the economy continues to stagnate and homeowners struggle to keep up with their payments, said FBI Special Agent Tom Simon of the Honolulu field office.

During the heyday, mortgage fraud most often involved income and identity misrepresentation, said David Johnson, vice president of fraud and consortium solutions for CoreLogic. As new regulations have helped lenders better manage those issues, valuation fraud has become the more prevalent type, Johnson said.

Places like Hawaii, where home values can vary widely even on the same street due to factors like proximity to the ocean and view, are more vulnerable to this kind of fraud, he said. Johnson said it is difficult to make broad statements about mortgage fraud in Hawaii because it’s rare, the overall quantity of loans is small and the market is highly diversified, relative to its size. However, CoreLogic data show that the overall mortgage fraud risk in Hawaii, especially in ZIP codes starting with 967, is slightly elevated compared with the overall U.S. fraud risk.

"It’s about 12.5 percent to 13 percent higher," Johnson said. "Of course, we’ve got places where fraud is 150 to 300 percent higher."

As the economy has turned, some of these fraudulent loans have gone bad. CoreLogic estimates that about 25 percent of distressed assets have a fraudulent loan at their core, Johnson said.

As defaults have become foreclosures, rescue scams have grown, Simon said.

In the case of forensic audits, he said, "the scammers pretend they are looking for a loophole in the mortgage documents that can be exploited to extinguish the mortgage obligation.

"This approach has never worked and will never work," Simon said. "It is just another lie to separate the victims from their money."

While most scammers keep their cons affordable, Caminos said that he knows of Hawaii people who have lost $40,000 to $60,000.

On Dec. 16 the assistant U.S. attorney concluded a case in Honolulu where conspirators diverted $98,000, $78,000 and $51,000 in equity and fees away from distressed homeowners. A jury found Welton Kalani, 48-year-old owner of New Horizons Financial, and Stephen Balino, 51-year-old co-owner of Accel Mortgage, guilty of mortgage fraud and money laundering. Eight other individuals pled guilty to charges arising out of the same transactions, and testified for the government during the trial.

Kalani, Balino and others conned homeowners facing financial difficulties by offering them the chance to stay in their homes, rent free, by transferring the title to others temporarily. They promised the homeowners that a buyer would purchase the property and make mortgage payments until the homeowners were able to buy it back. The two then recruited "straw buyers," who would make false loan statements to fund the sham purchases.

To protect struggling homeowners, the FTC passed its Mortgage Assistance Relief Services (MARS) rule last winter banning foreclosure rescue and loan modification services from collecting fees until homeowners have what they consider an acceptable written offer from their lender or servicer.

Hawaii has had similar rules since 2008 when the distressed property consultant statute was enacted, said Bruce Kim, executive director of the state Department of Commerce and Consumer Affairs’ Office of Consumer Protection.

"Scammers are very clever, and they most often prey on people who are desperate and grasping at straws," Kim said. "What’s sad is that a HUD-approved counselor could provide free help."

MARS also provides some exemptions for licensed nonprofits and for attorneys who are licensed in the state where the consumer lives and has a house. However, the FTC has been aware of deceptive and abusive practices within these categories, said Evan Zullow, an attorney in the FTC’s division of financial practices.

Attorneys have been among those cited in the more than 33 FTC actions related to mortgage relief violations in the past few years, he said. And, while the FTC does not have jurisdiction over bona fide nonprofit entities, it does pursue companies that claim to be nonprofit but are essentially for-profit, Zullow said.

"When they are a sham, we have the authority to go after them," he said.

If a purported nonprofit is asking for anything more than a nominal "donation," consumers should be very skeptical, said FTC spokesman Frank Dorman.

Simon also urges caution for Hawaii residents seeking new mortgage terms online.

"Many con men have set up sophisticated websites designed to defraud these distressed homeowners," he said. "Many of the scam websites create the illusion they have an affiliation with federal programs through the use of governmentlike seals or logos on their sites."

The biggest red flag indicating a mortgage modification scam is the requirement of an advance fee to the agency promising to help the distressed homeowner, Simon said. Another common fraud indicator seen in Hawaii is the con men telling homeowners to stop paying their mortgages or to cease all contact with their lenders and that their debts can be eliminated through Uniform Commercial Code filings or declarations of personal sovereignty, he said.

Refinancing tips

The Better Business Bureau is warning all homeowners who are thinking of applying for a Home Affordable Refinance Program refinance to:

» Deal directly with your lender first, and never make payments to anyone other than your lender.

» Don’t pay upfront fees to anyone who promises to provide counseling, takes care of the paperwork for you or stops the foreclosure process.

» Be wary of anyone who tells you not to contact your lender, a lawyer or a credit counselor, or who asks for payment by cashier’s check or wire transfer.

» Never sign over your deed to anyone or allow yourself to be pressured into signing something you don’t understand.

» Be especially careful of look-alike and sound-alike websites.

» Find out whether you qualify by calling the Homeowner’s HOPE Hotline at 888-995-HOPE (4673) to speak to a HUD-approved housing counselor for free (assistance is available in English and Spanish, and in other languages by appointment).

» Report scams to BBB at www.bbb.org/us/scam-source.

Source: Better Business Bureau