LOS ANGELES - One American industry is booming amid the slump and job losses: mortgage rescue scams that prey on homeowners in financial straits.

The scammers have low start-up costs and expert market knowledge, many of them having learned their predatory tricks in the boom in providing subprime mortgages a few years ago.

Experts say they will thrive as long as the nation remains in the throes of its worst housing crisis since the Depression with millions of Americans unable to pay their mortgages.

Rescue scams are the real growth industry, said Keith Slotter, special agent in charge at the San Diego office of the U.S. Federal Bureau of Investigation.

All you need to target people is a computer and know-how to set up a website and you're in business. These groups can set up quickly, target people across multiple states, shut down and move on before they're detected.

Mortgage fraud was easy during the fast and loose years of the real estate boom.

Some analysts say fraud played a big role in triggering the subprime crisis that pushed America into recession in 2007 and wiped out trillions of dollars in property values.

Now, rescue scams are costing homeowners money and wasting valuable months when they could be talking to their lenders about saving their homes -- delays that can cause unnecessary foreclosures and prolong the U.S. housing crisis.

There are a lot more people we could help if it weren't for rescue scams, said Melinda Opperman of housing counseling agency Springboard in Riverside, California. This could end up slowing down any potential recovery.

Out of desperation to hold onto their piece of the American dream, couples like Salvador and Blanca Jimenez in Los Angeles become easy prey.

The couple bought their first home in 2005 for $430,000 with an adjustable rate mortgage. When their monthly payment jumped by $800 to $2,691 in early 2008, Salvador's wages as a driver for a seafood company were stretched to the limit.

We were barely able to make the payments, Salvador said.

He said that shortly after a late payment, he received a letter from a firm called Direct Lender, offering help to get a loan modification with a lower monthly payment, for a $3,995 fee.

The couple were greeted at Direct Lender's offices by friendly and smartly dressed staff speaking Spanish.

When they explained to us in Spanish how they were going to save our house, we felt comforted, Salvador, 46, said through an interpreter. We believed in them.

The couple stopped paying their mortgage and paid Direct Lender instead. Soon afterward, they received notice from their bank demanding payment.

I called the bank and told them Direct Lender was taking care of everything and the bank said they'd never heard from any third party, Salvador said. Often operations like this open and shut so fast it's hard to track them down.

Salvador and Blanca turned to the Los Angeles Center for Law and Justice, which provides free legal services to low-income families.

The center has filed a complaint against some Direct Lender executives, as has the U.S. Federal Trade Commission, which prohibits deceptive business practices.

In a complaint to a U.S. District Court in California, the FTC said Direct Lender was a fictitious business name operated by another company that engaged in deceptive acts and practices. Along with a second firm, it participated in a common scheme to deceive consumers, the civil complaint said.

This is a rare case because we actually have the name of someone we can file suit against, said Steve Arrodondo, an attorney at the center who is representing the couple.

Daniel Nassie, an attorney at Nassie Law representing Aaron Cuha -- one of the defendants named in the center's complaint, which seeks damages -- said his client was a fine gentleman and upstanding businessman but could not discuss the case. Other defendants could not be reached.

As millions of Americans face losing their homes over the next few years, the U.S. government and law enforcement agencies are gearing up to tackle what Arrodondo's fellow attorney Michael Chung calls a tidal wave of rescue scams.

We were set up to help people deal with various legal issues, he said. But almost every single call I get is related to rescue scams.


Not so long ago the real growth area for scams in the U.S. housing market was quite different.

During the boom, banks engaged in years of loose, irresponsible lending that allowed borrowers to obtain mortgages with no money down and with no proof of income, providing fertile ground for fraudsters.

This subprime bonanza allowed criminals to team with mortgage brokers and property appraisers to inflate property prices, then buy and sell or flip homes at huge profits -- often to straw or nonexistent buyers.

Subprime fraud played a huge role in the housing crisis, said Todd Lackner, a mortgage fraud investigator in San Diego. Bank employees must have recognized individual cases of fraud but no one was looking at the whole market and realizing this was an epidemic.

That epidemic helped cause the housing crisis that in turn pushed the world's largest economy into recession in 2007.

There have been some recent signs of a nascent recovery in housing prices but rising unemployment and a potential flood of foreclosed homes coming on to the market could bring further falls and more pain.

In April alone, the FBI in San Diego charged 24 people with racketeering involving 220 properties for a total sales price of more than $100 million. Nationwide, the FBI said in September it has 300 agents working on 2,600 open fraud cases -- eight agents in the San Diego office alone.

As the housing crisis mushroomed, targeting vulnerable borrowers has become a gold mine.

The amounts per person are relatively small -- anywhere up to $8,000 -- but they add up quickly. In its 2008 Mortgage Fraud Report the FBI said total losses due to mortgage fraud are unknown but at least 63 percent of cases in 2008 involved losses of more than $1 million covering multiple counts.

We expect rescue scams to continue rising over the next three to four years as we work our way through this crisis, Slotter said.

In many ways this is the most despicable kind of fraud, he added. These criminals target people who are about to lose everything they have and take thousands of dollars from them.

Counselors say many behind the scams are the same former mortgage brokers who sold bad subprime loans during the boom.

They know exactly whom to target and when because they know how the market works, said Antonio Hicks, an attorney at nonprofit group Legal Services of Los Angeles County. They look to see who's in default and they go after them.

The situation is often worse in minority communities where scammers abuse bonds of trust.

We've even seen cases where people were targeted in church by members of their own community, Arrodondo said. There is no limit to how low they'll go.



Describing the proliferation of fraudulent mortgage rescue schemes as an epidemic on September 17, the U.S. Treasury, Department of Justice, the Department of Housing and Urban Development and the FTC announced they would work together to target investigations and increase their efficiency.

A clear lesson of this financial crisis is that American consumers need better protection against fraud, U.S. Treasury Secretary Timothy Geithner said in a statement.

The city of Los Angeles now bans upfront fees for mortgage loan modification services in a bid to combat rescue scams.

Ultimately, educating homeowners about scams is more effective than trying to catch smart and mobile thieves, said John Brady, housing policy coordinator in the office of Mayor Antonio Villaraigosa.

FTC spokesman Frank Dorman said the commission is considering a possible nationwide ban on advance fees for loan modification and foreclosure rescue services.

Combating mortgage relief scams is one of the FTC's top priorities, he said.

Lori Gay, president of nonprofit lender Neighborhood Housing Services of Los Angeles, welcomed moves to target rescue scams and increased attention from the FBI.

More than half of the people who walk through our door seeking help have given money to criminals, she said. Those frauds even advertise on television and the radio. If you hear five commercials an hour offering help, four will be fake.

It's become a big business. I'm just glad that the authorities are waking up to the problem and doing something about it. I want more of these people behind bars.

(Editing by Mary Milliken)