Every time you see or hear an ad saying, “We guarantee we can save your home,” beware of a scam. There is no company, agency, or federal affiliate that can save every house from foreclosure. What lenders refer to as loss mitigation — the process of finding ways to keep borrowers in their homes — works on a case by case basis and requires an evaluation of all parts of a borrower’s loan and expenses. Yes, some properties can be saved, but there are no guarantees.

As more is learned about how the industry operated during its boom, we find mortgage fraud is nothing new. But it appears that some of the same people guilty of fraudulent mortgage practices in years past, along with some newcomers, have concocted new schemes to defraud homeowners. Today’s mortgage fraudster preys on the vulnerable, those who have run out of options and are desperate for help. They seek out people known to have fallen on hard times, pressuring them into making snap decisions about things they know little about. Unlike those schemes we saw during the peak of the housing market, which capitalized on the dream of owning a home, the fraud of today takes advantage of the fear of foreclosure. These practices bolster the stereotype of the predatory lender, except now the predators are the ones ostensibly offering assistance, tempting ignorant homeowners into what appears to be an easy solution to their tough problems. All this further erodes trust in the housing market which, in the long term, undermines the stability of lenders and homeowners alike.

Although fraud was common during the housing boom, the FBI’s 2008 Mortgage Fraud Report suggested a rise in activity after the bust: “There is a direct correlation,” it concluded, “between fraud and distressed real estate markets.” According to the study, there was a 36 percent increase from 2007 to 2008 of reported suspicious activity in the mortgage industry. This led to $1.4 billion of losses in 2008, and losses reported so far in 2009 exceeded the same period in 2008 by $208 million.

Nearly 12 percent of homeowners were at least one month behind or in foreclosure at the end of 2008, and that number has been growing steadily during 2009. These are the people targeted by those the FBI calls “mortgage fraud perpetrators.” Senior citizens are viewed as easy marks. The FBI report explains, “(perpetrators) recruit seniors through local churches, investment seminars, television, radio, billboard, and mailer advertisements, to commit fraud.”

The FBI outlines many different kinds of mortgage fraud, from taking advantage of distressed builders to fraudulent offers of credit repair. But the greatest problem in today’s markets is the “Foreclosure Rescue” scheme.

Once the culprits at work in these schemes have a borrower on the hook, they convince him to stop talking to his mortgage company or bank. The perpetrators then ask for an up front fee, usually between $1,000 and $3,000, and once it is paid, promise to handle the rest of the process. A legitimate mortgage lender may charge a fee when stopping the foreclosure process with a loan modification or a repayment plan, but it will not ask for this fee up front and will work to stay in contact with a borrower throughout the process.

Once the mortgage fraud perpetrators have received their fee, they tell the borrower to stop making mortgage payments, or worse, to make mortgage payments to the bogus organization directly. They may use part of the up front fee to file paperwork putting the borrower into bankruptcy, as this places a temporary hold on any foreclosure proceedings. Since the defrauders told the borrower to stop talking to lenders and anyone affiliated with the court system, the borrower has no idea this hold only lasts until the case is heard in court. When the borrower does not show up for the court date, foreclosure proceedings resume. Or, in most other cases, perpetrators falsely tell a borrower that the troubled mortgage can be renegotiated and monthly payments can be reduced with delinquent payments applied to the principle or negotiated away. They tell the borrower that the loan is being worked on, but nothing is ever done. In most cases, once the borrower realizes she or he has been a victim of mortgage fraud, the loan is so delinquent that there is little any legitimate lender can do.

More needs to be done by the mortgage industry to make homeowners aware of these schemes. The Administration of National Banks and the U.S. Treasury Department produced a list of “Consumer Tips for Avoiding Mortgage Modification and Foreclosure Rescue Scams” in April, but it is important for all legitimate lenders to make sure borrowers know what risks are out there.

Mortgage fraud is taking money out of a market working to rebuild itself, and these schemes, along with the intervention it will take to end them, will only slow recovery. They also further deteriorate trust in the housing market, where this quality is critical. We need to trust our builders to build safe homes, trust our realtors to price homes fairly, and trust our lenders to have in mind the best interests of the people who comprise their market. When this trust is damaged, it is more difficult to stem falling home values and housing recessions. Unethical mortgage operations, like all selfish and shortsighted economic activities, do not only harm the immediate victims; they hurt all of us.

New proposals ignore the real danger associated with “strategic default,” when homeowners decide to stop paying their mortgage, even though they have enough money to make payments. The Obama administration is working to lower monthly mortgage payments, but as a recent study conducted at the University of Chicago points out, it is not necessarily high payments but negative equity in homes that drives default.

In the study, researchers found that “individuals who think the government should help homeowners who cannot make their mortgage payments are 12 percentage points less likely than the average homeowner to say strategic default is morally wrong.” The same study states that “26 percent of existing defaults are strategic.”

It is difficult to prove whether someone stopped making mortgage payments out of need or out of choice. The study discovered the true rate of strategic default by asking people at what point they would choose to walk away from their home instead of continuing to pay their mortgage. Was it when the value of their mortgage exceeded the value of their house by $50,000, $100,000, or $300,000? The survey found, “no household would default if the equity shortfall is less than 10 percent of the value of the home. Yet, 17 percent of households would default, even if they can afford the mortgage, when the equity shortfall reaches 50 percent” (emphasis added).

The problem of strategic default highlights one of the ways in which the current downturn is a function of ethical failure. Increasingly, the determination of when to default is not guided by the moral question: Is this the right thing to do? It is guided by the pragmatic concern: Am I too far underwater on my mortgage? Such difficulties are not easily addressed by legislation because they are deeply rooted in the moral culture in which the market operates. The University of Chicago survey found that important variables in predicting strategic default have nothing to do with money. “People who consider it immoral to default are 77 percent less likely to declare their intentions to do so, while people who know someone who defaulted are 82 percent more likely to declare their intentions to do so.” The more socially acceptable it becomes to default, the more likely people are to do it.

The bottom line: Choosing to walk away from a mortgage when you have the money to make payments is fraud. A contract has been signed, terms have been laid out, and a promise has been made. The biggest problem this survey shows us is not that 26 percent of defaults are strategic, but that Americans are not exactly sure if strategic default is wrong.

This moral weakness has concrete consequences. A mortgage company or bank loses money every time it forecloses on a house. Strategic defaults, which in almost every case lead to foreclosure, will lead to more financial loss to the mortgage industry. People living near someone who defaults can expect lower home values. It is a nasty cycle: As more homes go into foreclosure, more housing prices in the area drop, more people have negative equity in their homes, more defaults, and again, more foreclosures. When people who can still afford to keep their mortgage payments current choose to go into foreclosure, they do not just take money from their lender, they accelerate the decline of home values in their entire neighborhood and harm their community.

New legislation has done little to slow this cycle of foreclosure. The Obama administration is focusing on lower borrower payments, believing “that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments.” The solution the administration proposes is the Home Affordable Modification Program, or HAMP. This loan modification program specifically targets Fannie Mae and Freddie Mac loans, working to lower borrowers’ monthly payments to 31 percent or less of their monthly gross income. It does so by lowering interest rates, and, if necessary, extending maturity dates, using taxpayer money to make up the difference in the payments. It is the most complex and time consuming loan modification system lenders have ever seen, and lenders who service Fannie Mae and Freddie Mac loans must comply with the new federal regulations or face serious fines and sanctions.

Obama’s plan is not forever. In five years, the payments that HAMP set will begin to rise again to meet the market interest rate. And if current trends continue, home equity will continue to fall for months and possibly years. This legislation is simply further distorting the correction necessary to right the market. Some struggling to keep up with their mortgage simply cannot afford the home they purchased and the false floor offered by HAMP only defers the inevitable. Others—the potential strategic defaulters—should make the sacrifices necessary to fulfill the contract they signed. Further tinkering with the mortgage market only continues the problems that got us into this crisis, and prolongs the time it will take to turn it around.