MW 3 shady tactics used during the 2008 housing crisis could be making a comeback

By Aarthi Swaminathan

Fraud 'requires vigorous, consistent oversight,' a consumer attorney tells MarketWatch

President Donald Trump's administration is making deep cuts to the federal agency that oversees financial products such as mortgages and student loans - and as a result, risky loans and scams reminiscent of the subprime-mortgage crisis could make a comeback, consumer advocates warn.

The Trump administration has slashed jobs and cut core functions of the Consumer Financial Protection Bureau, the nation's top consumer watchdog, which was created in the aftermath of the 2008 financial crisis. The agency is tasked with protecting consumers from fraud and shady lending practices, as well as taking enforcement action against companies that break the law.

While court orders in recent weeks have stymied the administration's efforts to fully eliminate the CFPB, observers say the agency is now a shell of its former self. And winding down the agency's activities and its ability to keep an eye on lenders could open the door not only to ghosts of the subprime crisis but to new types of scams as well, advocates told MarketWatch.

Even power players in the real-estate and mortgage industries can't imagine a world without the CFPB's rules. Such an environment could "set off a wave of challenges and the housing market could descend into chaos, to the detriment of all mortgage borrowers," the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors wrote in a 2023 amicus brief to the Supreme Court in a case that challenged the constitutionality of the CFPB's funding structure.

The types of schemes that could harm the average home buyer or homeowner run the gamut, Alys Cohen, a senior attorney at the National Consumer Law Center, told MarketWatch.

Consumer advocates listed a variety of scenarios: Home buyers might be denied a mortgage based on where they live or what they look like. Buyers might end up with mortgages they won't ever be able to repay. Struggling homeowners might pay a scammer to get a reprieve from a potential foreclosure, then end up losing their home anyway.

Not having a dedicated entity policing such tactics leaves consumers vulnerable, Cohen said. "The problem is that fraud is like whack-a-mole," she said. "It requires vigorous, consistent oversight."

The hollowing out of the CFPB could not have come at a worse time, consumer groups say. As a consequence of the Trump administration's trade war, many economists and analysts are predicting a recession - which means that an increasing number of people may lose their jobs and be unable to pay their mortgages.

And in that scenario, the CFPB may no longer be able to make sure servicers are following the rules and treating consumers fairly, said Eric Halperin, who used to head enforcement at the agency.

Related: 'Dumbest trade war in history' will put homeownership even further out of reach, Elizabeth Warren says

Read more: 7 ways to safeguard your money as the Trump administration weakens consumer protections

The CFPB and the White House did not respond to requests for comment.

An increasing number of homeowners are already feeling financially stressed. Foreclosure filings in the U.S. in March were up 9% from the same month a year earlier and up 11% from the previous month alone, according to a report from Attom, a property-data provider. Even though levels are still below historical averages, the growth "suggests that some homeowners may be starting to feel the pressure of ongoing economic challenges," Rich Barber, chief executive of Attom, said in a statement.

With the CFPB sidelined, "scammers will have a field day," Sen. Elizabeth Warren, the Massachusetts Democrat who first proposed the idea behind the agency, told MarketWatch recently. "Now there's a big advertisement out saying scammers, this is your chance. Let the games begin."

Here's are three mortgage-industry and scammer tactics that could see a resurgence in the absence of strong CFPB oversight, according to experts.

Mortgages that people can't pay back

Cohen at National Consumer Law Center said she was concerned about home buyers getting into mortgages that they would never be able to pay back.

The worry stems from what happened during the subprime-mortgage crisis, which was fueled by lenders putting buyers into unaffordable loans. Lenders deceived consumers who were applying for home loans by misrepresenting loan terms, payment increases and borrowers' ability to afford the loans.

Countrywide, a prominent lender at the time that was later acquired by Bank of America, agreed to pay billions of dollars in fines for allegedly participating in such practices. Borrowers and regulators, according to a Center for Responsible Lending paper from 2008, accused the company of "steering borrowers with good credit into higher-cost 'subprime' loans; gouging minority borrowers with discriminatory rates and fees; working in cahoots with mortgage brokers who use bait-and-switch tactics to land borrowers into loans they can't afford; targeting elderly and non-English-speaking borrowers for abusive loans; and packing loans with inflated and unauthorized fees."

In the wake of a $335 million settlement in 2011 over allegations that Countrywide had charged Black and Latino borrowers higher fees and rates and steered them toward subprime mortgages, a Bank of America spokesperson told the New York Times that the company had "discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues."

Tactics like that could be making a comeback. In early January, the CFPB under then-President Joe Biden sued Vanderbilt Mortgage & Finance for allegedly ignoring "clear and obvious flags" that borrowers looking for financing to purchase a manufactured home "could not afford the loans."

Vanderbilt used "artificially low estimates of living expenses that made no adjustment for higher expenses in different geographic areas," according to the agency. For instance, Vanderbilt "left one family of five with only $57.78 in net income after Vanderbilt applied its estimate of living expenses," the bureau said. "That family first missed a payment only a year after signing the mortgage."

The CFPB under Trump has dismissed the lawsuit.

In a statement to MarketWatch, Vanderbilt said the company's underwriting processes "exceed the legal requirements" for making sure borrowers can repay their mortgage, and also go further by taking into account the greater of the borrower's actual reported expenses or an estimated living expense of the family before making the loan.

The company added in a follow-up email that state agencies and other federal agencies, including the Department of Housing and Urban Development and the Federal Trade Commission, still oversee mortgage lending. "In the past two years, in addition to federal oversight, state agencies have examined Vanderbilt more than 50 times, resulting in no fines or penalties," Vanderbilt added.

There are in fact rules in place to prevent overborrowing. The 2010 Dodd-Frank Act, which established the CFPB, requires that lenders make a reasonable assessment of a consumer's ability to repay before making a loan. But whether mortgage lenders follow the rules without the CFPB's oversight is an open question, consumer advocates said.

If "bad actors want to fudge those numbers or make misrepresentations to people about what's affordable and make loans that people can't afford by discounting information, it will be harder to have those problems addressed if you don't have the bureau," Cohen said.

Trump officials' decision to drop the CFPB lawsuit against Vanderbilt "shows that they're not worried about [consumers'] ability to repay," Cohen added.

Racial discrimination in mortgage lending

Cohen said she also worries about companies returning to redlining.

Redlining refers to the practice of denying credit or financial services to borrowers based on race or ethnicity. The Federal Housing Administration, which backs residential mortgages, began the racially discriminatory practice in the 1930s, as the agency concluded that no loan was "economically sound" if the property was located in a neighborhood populated by Black people. The FHA claimed that property values could decline over the life of the mortgage, according to the Federal Reserve.

From the archives (February 2024): How real-estate agents and private developers created the blueprint for redlining, according to one historian

Though the 1968 Fair Housing Act banned redlining, some lenders still illegally engage in the practice today, consumer advocates said. In recent cases against Fairway Independent Mortgage Corp. and Townstone Financial, the Biden-era CFPB fined the lenders for allegedly having engaged in redlining and unlawful discrimination.

The Trump administration has since tossed those lawsuits. And in the Townstone case - in which the agency, based on lending data, had accused the company of discouraging potential mortgage applicants on the basis of their race, or due to the racial composition of the area where they lived or sought to live - the CFPB has even returned the $105,000 it fined the company.

Townstone's chief executive, Barry Sturner, told MarketWatch that redlining would run counter to the company's bottom line and pushed back against concerns that lenders could engage in discriminatory practices in the future. "If we don't close loans, then we don't get paid," Sturner said. "There has to be motivation, something to gain by redlining, right? [But] what does a loan officer gain?"

He added: "Most consumers who file complaints because their loans don't get approved blame the loan officer when the facts are the consumer didn't meet the guidelines set forth by Fannie Mae and Freddie Mac."

MW 3 shady tactics used during the 2008 housing crisis could be making a comeback

By Aarthi Swaminathan

Fraud 'requires vigorous, consistent oversight,' a consumer attorney tells MarketWatch

President Donald Trump's administration is making deep cuts to the federal agency that oversees financial products such as mortgages and student loans - and as a result, risky loans and scams reminiscent of the subprime-mortgage crisis could make a comeback, consumer advocates warn.

The Trump administration has slashed jobs and cut core functions of the Consumer Financial Protection Bureau, the nation's top consumer watchdog, which was created in the aftermath of the 2008 financial crisis. The agency is tasked with protecting consumers from fraud and shady lending practices, as well as taking enforcement action against companies that break the law.

While court orders in recent weeks have stymied the administration's efforts to fully eliminate the CFPB, observers say the agency is now a shell of its former self. And winding down the agency's activities and its ability to keep an eye on lenders could open the door not only to ghosts of the subprime crisis but to new types of scams as well, advocates told MarketWatch.

Even power players in the real-estate and mortgage industries can't imagine a world without the CFPB's rules. Such an environment could "set off a wave of challenges and the housing market could descend into chaos, to the detriment of all mortgage borrowers," the Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors wrote in a 2023 amicus brief to the Supreme Court in a case that challenged the constitutionality of the CFPB's funding structure.

The types of schemes that could harm the average home buyer or homeowner run the gamut, Alys Cohen, a senior attorney at the National Consumer Law Center, told MarketWatch.

Consumer advocates listed a variety of scenarios: Home buyers might be denied a mortgage based on where they live or what they look like. Buyers might end up with mortgages they won't ever be able to repay. Struggling homeowners might pay a scammer to get a reprieve from a potential foreclosure, then end up losing their home anyway.

Not having a dedicated entity policing such tactics leaves consumers vulnerable, Cohen said. "The problem is that fraud is like whack-a-mole," she said. "It requires vigorous, consistent oversight."

The hollowing out of the CFPB could not have come at a worse time, consumer groups say. As a consequence of the Trump administration's trade war, many economists and analysts are predicting a recession - which means that an increasing number of people may lose their jobs and be unable to pay their mortgages.

And in that scenario, the CFPB may no longer be able to make sure servicers are following the rules and treating consumers fairly, said Eric Halperin, who used to head enforcement at the agency.

Related: 'Dumbest trade war in history' will put homeownership even further out of reach, Elizabeth Warren says

Read more: 7 ways to safeguard your money as the Trump administration weakens consumer protections

The CFPB and the White House did not respond to requests for comment.

An increasing number of homeowners are already feeling financially stressed. Foreclosure filings in the U.S. in March were up 9% from the same month a year earlier and up 11% from the previous month alone, according to a report from Attom, a property-data provider. Even though levels are still below historical averages, the growth "suggests that some homeowners may be starting to feel the pressure of ongoing economic challenges," Rich Barber, chief executive of Attom, said in a statement.

With the CFPB sidelined, "scammers will have a field day," Sen. Elizabeth Warren, the Massachusetts Democrat who first proposed the idea behind the agency, told MarketWatch recently. "Now there's a big advertisement out saying scammers, this is your chance. Let the games begin."

Here's are three mortgage-industry and scammer tactics that could see a resurgence in the absence of strong CFPB oversight, according to experts.

Mortgages that people can't pay back

Cohen at National Consumer Law Center said she was concerned about home buyers getting into mortgages that they would never be able to pay back.

The worry stems from what happened during the subprime-mortgage crisis, which was fueled by lenders putting buyers into unaffordable loans. Lenders deceived consumers who were applying for home loans by misrepresenting loan terms, payment increases and borrowers' ability to afford the loans.

Countrywide, a prominent lender at the time that was later acquired by Bank of America, agreed to pay billions of dollars in fines for allegedly participating in such practices. Borrowers and regulators, according to a Center for Responsible Lending paper from 2008, accused the company of "steering borrowers with good credit into higher-cost 'subprime' loans; gouging minority borrowers with discriminatory rates and fees; working in cahoots with mortgage brokers who use bait-and-switch tactics to land borrowers into loans they can't afford; targeting elderly and non-English-speaking borrowers for abusive loans; and packing loans with inflated and unauthorized fees."

In the wake of a $335 million settlement in 2011 over allegations that Countrywide had charged Black and Latino borrowers higher fees and rates and steered them toward subprime mortgages, a Bank of America spokesperson told the New York Times that the company had "discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues."

Tactics like that could be making a comeback. In early January, the CFPB under then-President Joe Biden sued Vanderbilt Mortgage & Finance for allegedly ignoring "clear and obvious flags" that borrowers looking for financing to purchase a manufactured home "could not afford the loans."

Vanderbilt used "artificially low estimates of living expenses that made no adjustment for higher expenses in different geographic areas," according to the agency. For instance, Vanderbilt "left one family of five with only $57.78 in net income after Vanderbilt applied its estimate of living expenses," the bureau said. "That family first missed a payment only a year after signing the mortgage."

The CFPB under Trump has dismissed the lawsuit.

In a statement to MarketWatch, Vanderbilt said the company's underwriting processes "exceed the legal requirements" for making sure borrowers can repay their mortgage, and also go further by taking into account the greater of the borrower's actual reported expenses or an estimated living expense of the family before making the loan.

The company added in a follow-up email that state agencies and other federal agencies, including the Department of Housing and Urban Development and the Federal Trade Commission, still oversee mortgage lending. "In the past two years, in addition to federal oversight, state agencies have examined Vanderbilt more than 50 times, resulting in no fines or penalties," Vanderbilt added.

There are in fact rules in place to prevent overborrowing. The 2010 Dodd-Frank Act, which established the CFPB, requires that lenders make a reasonable assessment of a consumer's ability to repay before making a loan. But whether mortgage lenders follow the rules without the CFPB's oversight is an open question, consumer advocates said.

If "bad actors want to fudge those numbers or make misrepresentations to people about what's affordable and make loans that people can't afford by discounting information, it will be harder to have those problems addressed if you don't have the bureau," Cohen said.

Trump officials' decision to drop the CFPB lawsuit against Vanderbilt "shows that they're not worried about [consumers'] ability to repay," Cohen added.

Racial discrimination in mortgage lending

Cohen said she also worries about companies returning to redlining.

Redlining refers to the practice of denying credit or financial services to borrowers based on race or ethnicity. The Federal Housing Administration, which backs residential mortgages, began the racially discriminatory practice in the 1930s, as the agency concluded that no loan was "economically sound" if the property was located in a neighborhood populated by Black people. The FHA claimed that property values could decline over the life of the mortgage, according to the Federal Reserve.

From the archives (February 2024): How real-estate agents and private developers created the blueprint for redlining, according to one historian

Though the 1968 Fair Housing Act banned redlining, some lenders still illegally engage in the practice today, consumer advocates said. In recent cases against Fairway Independent Mortgage Corp. and Townstone Financial, the Biden-era CFPB fined the lenders for allegedly having engaged in redlining and unlawful discrimination.

The Trump administration has since tossed those lawsuits. And in the Townstone case - in which the agency, based on lending data, had accused the company of discouraging potential mortgage applicants on the basis of their race, or due to the racial composition of the area where they lived or sought to live - the CFPB has even returned the $105,000 it fined the company.

Townstone's chief executive, Barry Sturner, told MarketWatch that redlining would run counter to the company's bottom line and pushed back against concerns that lenders could engage in discriminatory practices in the future. "If we don't close loans, then we don't get paid," Sturner said. "There has to be motivation, something to gain by redlining, right? [But] what does a loan officer gain?"

He added: "Most consumers who file complaints because their loans don't get approved blame the loan officer when the facts are the consumer didn't meet the guidelines set forth by Fannie Mae and Freddie Mac."

(MORE TO FOLLOW) Dow Jones Newswires

April 16, 2025 16:33 ET (20:33 GMT)

MW 3 shady tactics used during the 2008 housing -2-

Fairway, the other lender, also told MarketWatch the bureau had mischaracterized the company's actions, and it denied having engaged in any discriminatory behavior.

Nonetheless, it remains to be seen whether companies will follow laws that ban redlining, Cohen said. "People looking for a mortgage are in a less safe environment" overall, she said, "because they may not be able to get a mortgage. And even if they do, they have to be really careful that they can afford it, because there is no federal oversight."

The CFPB's decision to refund the penalty paid by Townstone, in particular, crossed a line for some advocates.

"The fact that the acting head of the CFPB is looking at how to return money to a mortgage company that had settled claims against them is the most aggressive endorsement of lawlessness that I have ever seen from a government agency," Warren told MarketWatch. "They're actually trying to undo settlements that have already been resolved."

Consumer watchdogs are also worried about what other bad practices could now be perceived as acceptable. "This form of radical forgiveness could scale quickly," Adam Rust, the director of financial services at the Consumer Federation of America, said in a blog post.

He noted that in 2022, the CFPB ordered Wells Fargo to pay a $1.7 billion fine and $2 billion in consumer redress for what it said were wrongful foreclosures, misapplied loan payments, illegal car repossessions and other misdeeds. The company didn't admit any wrongdoing in the settlement. "Imagine if the CFPB chose to make similar reconciliations there," Rust wrote.

Scammers who target home equity or ownership

Cohen also warned about shady lenders and scammers trapping homeowners in financial arrangements that land them neck-deep in debt or result in them losing their home. In 2009, the deputy director of the Federal Bureau of Investigation told Congress that "some of the current rising mortgage fraud trends include equity skimming, property flipping, mortgage identity-related theft, and foreclosure rescue scams."

The concern today partly stems from a recent increase in homeowners missing their mortgage payments. More homeowners - particularly first-time homeowners and military veterans - are missing payments, and they are likely to seek financial assistance. But they also risk turning to a scammer, as opposed to a legitimate company, for that relief.

Scammers who target homeowners can be ruthless. They may even target people who are in the process of a foreclosure and are looking for a way out, Cohen said.

One such scam involves stealing a homeowner's equity in their property. In February, the Florida Attorney General's Office brought legal action against MV Realty, alleging the company had targeted 9,300 Florida homeowners who needed a quick cash loan alternative. MV Realty told homeowners that they would have to use the company as an exclusive broker but would not have to pay back the money received, officials said.

But instead of providing an agreement, the company pressured homeowners into a contract that included a 40-year lien on their property requiring them to pay a minimum of 3% of the home's value, the AG's office said - regardless of whether the company provided any services.

"In my almost six and a half years with the office, this was one of the worst abuses that crossed my desk," John Guard, the acting attorney general, said in a statement.

The company did not respond to a request for comment.

Homeowners who are not in distress could also be targeted by scammers, Cohen warned, as they look for ways to borrow money against the equity in their home.

And even homeowners who are not looking to extract equity or obtain financial relief should still keep their eyes peeled for any suspicious activity, based on a recent report from an FBI field office.

Homeowners in the Northeast are running into title fraud, according to the FBI's Boston Division. The field office, which covers Maine, Massachusetts, New Hampshire and Rhode Island, said earlier this month that property owners and real-estate agents are experiencing home-title theft. The scam involves a fraudster forging documents to record a fake transfer of property ownership, according to the FBI. The fraudster then sells the vacant land, takes a mortgage on it or even rents it out, forcing the actual owners to go to court to reclaim their property.

For instance, a scammer would use public records to find vacant parcels or properties that don't have a mortgage on them, then pretend to be the owner and ask a real-estate agent to list the property, the field office said. The actual owners of the properties may not even be aware of the sale until after the fact.

"Folks across the region are having their roots literally pulled out from under them and are being left with no place to call home," Jodi Cohen, special agent in charge of the FBI's Boston Division, said in a statement. "We are urging the public to heed this warning and to take proactive steps to avoid losing your property."

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 16, 2025 16:33 ET (20:33 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.