Deputy Assistant FBI Director David Cardona wants people to know mortgage fraud isn’t going away. Cordona’s team that focuses on white collar crime reports that the number of FBI mortgage fraud cases pending in 2010 rose 12% from 2009. For now, prospects are for the problem to continue.
What makes these FBI statistics most troubling is that this rise in mortgage fraud has occurred in spite of increased public awareness, intensifying focus on the crime by law enforcement, and much stricter borrowing standards by banks and other lending institutions. As a result, the FBI issued a warning the first of August that the mortgage fraud, in its words, “remains elevated.”
Florida led the nation in 2010 for reports of pending mortgage fraud charges. Other states listed in the top ten include Florida, New Jersey, New York, California, Virginia, Michigan, Maryland, Colorado, and Illinois. Officials are seeking to avoid alarming the public, but the sobering reality of a continuingly weak economy, distressed housing market, and unchecked unemployment is impossible to overlook. Assistant Director Cardona, who heads up the FBI’s financial crimes units, acknowledged, “It could get worse. There could be more victims.”
Primarily responsible are mortgage brokers and various insiders in loan originations. Sophisticated fraudulent documents are becoming increasingly difficult for investigators to identify, making prosecution more difficult as well. One good piece of news is that the FBI sees no evidence of interests outside the United States being involved in such fraud.
The FBI points to an army of professionals, and even a few ethnic gangsters, that remains out there, ripping off lenders; this is in spite of all the well-publicized warnings about criminal mortgage practices. There are a host of players in the mortgage fraud game, including mortgage brokers, accountants, real estate agents, appraisers, underwriters, land developers, settlement attorneys, builders, investors, lenders, and bank and trust account representatives. Little has changed about the methods they use, such as inflating appraisals, fabricating income statements, and using straw buyers.
There’s also been an increase in scams taking advantage of a market that is clearly still on its way down. These involve loan modifications, short sales, firms promising to rescue troubled home buyers from foreclosures, bank-owned properties, and homes with negative equity. “The continuing depressed housing market will likely remain an attractive environment for mortgage fraud perpetrators,” the FBI reports.
It isn’t just lenders involved in these scams. The State Attorney General of California recently filed suit against a group of lawyers for their alleged role in stealing millions of dollars from the accounts of 2,500 homeowners. A civil suit accuses three law firms, three attorneys, and a handful of other defendants of mailing over two million advertisements to homeowners across California and some seventeen other states promising reduced interest rates and loan balances for homeowners who signed up to sue their lenders and servicers.
The FBI says it’s unable to calculate the economic damage, but it can cite a report from data and analytics firm CoreLogic showing over $10 billion in loans made on fraudulent application data in 2010. The FBI report also cites data from RealtyTrac, which reported 2.9 million foreclosures in 2010, up 2 percent over 2009 and 23 percent over 2008.
Most people are focused on the financial news of the day like a downgrade in U.S. debt, the decline in the stock market, the likelihood of a new recession, and whether a slowdown in Germany is going to bring European debt problems to a boil. Yet the original banking problem has yet to be resolved: basic underwriting. To say there has been a rise in mortgage fraud is like reporting a surge in nighttime bank robberies after banks decided to leave their lights on, the doors unlocked, and the their safes open.