Mortgage aid plan labeled a fraud risk
WASHINGTON — Recent changes to the Obama administration’s mortgage assistance program may make it more vulnerable to fraud, a government watchdog says.
The changes, disclosed last month, are intended to make it easier for struggling homeowners to avoid foreclosure. But the administration hasn’t done enough to warn the public about fraud and hasn’t included sufficient safeguards to prevent abuse, the special inspector general for the Troubled Asset Relief Program, or TARP, said.
“Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners,’’ inspector general Neil Barofsky wrote in a quarterly report to be issued today.
Last month, the Treasury Department revised the $75 billion mortgage assistance program it first rolled out last year. It is intended to prevent 3 million to 4 million home foreclosures by encouraging mortgage lenders to lower monthly payments.
Mortgage lenders will receive incentive payments if they reduce the amount borrowers owe. Unemployed homeowners can get their mortgage payments cut to 31 percent of their income for three to six months.
Under the changes announced last month, Treasury isn’t requiring appraisals to determine a home’s value in cases where mortgage principal is reduced, the report said. That could make it easier for mortgage lenders to fraudulently qualify for incentive payments.
Treasury should instead follow the Federal Housing Administration’s guidelines, which require the use of an FHA-approved appraiser, the report recommended.
Treasury officials said they will initiate a public service campaign warning against fraud.