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Mortgage fraudsters find new schemes

Lenders have tightened the rules, but crooks are finding new ways to steal, including identity theft.

By Teresa Mears Aug 24, 2010 2:02PM

The end of the real estate boom hasn't ended one unpleasant byproduct: mortgage fraud.

 

Attempts by lenders to tighten standards haven't ended fraud, but just forced crooks to find new schemes.

 

"There were plenty of opportunities for fraud on the way up and there are plenty on the way down," Clifford Rossi, a former chief credit officer at Citigroup and a teaching fellow at the University of Maryland, told Reuters, which did a special report on mortgage fraud.

 

Citing data from CoreLogic, The Wall Street Jourrnal reported that losses from mortgage fraud rose 17% last year. Mortgage fraud peaked in 2006 and had declined 57% in the two years after that. According to the data, about 0.7% of all U.S. mortgages in 2009 were made with false application information.

As lenders have adopted tighter standards for borrowers' income documentation and credit, crooks are turning to identity theft, short sale "flopping" and other, different types of fraud. As the WSJ explains:

Fraudsters have adapted to the new restrictions. With banks less apt to lend to borrowers with shaky finances, criminals rely more on falsifying documents, recruiting loan officers and other bank insiders to work for them, and stealing identities to get loans, federal investigators and mortgage industry research reports.

"Even though we have certain compliance measures in place, people will adapt whatever scheme," Sharon Ormsby, the FBI's section chief for financial crimes, told the WSJ. "It doesn't matter if the market is going up or down."

 

Among some current mortgage fraud schemes reported by Reuters and the WSJ:

  • A tenant of a house in Phoenix intercepted his landlord's mail, stole the landlord's Social Security number and got a driver's license in his name. With the help of a friend who was a bank loan officer, the tenant took out a $245,000 cash-out mortgage, according to a federal indictment. The tenant apparently then fled with the money to Canada.
  • A total of 29 conspirators stole the identities of residents with good credit ratings who made more than $90,000 a year and used those identities to get second mortgages on 17 properties in New Jersey, according to federal prosecutors. The conspirators included 12 real estate agents, four mortgage consultants, an appraiser, a bank employee and a mortgage broker.
  • "Flopping" short sales. In this scheme, a real estate agent arranges a low-ball appraisal of a property offered for short sale and submits a purchase offer at that amount, telling the lender that's the best offer he'll get. Then the agent and the buyer resell the property at the real, higher market value.
  • Forging property owners' signatures and taking out reverse mortgages on homes owned by elderly people, then pocketing the money.

And, of course, there are also schemes in which companies promise to get homeowners a mortgage modification but instead take the money and do nothing or, even worse, steal the house. And don't forget the schemes in which people are trying to simply take vacant houses and other foreclosure fraud schemes.

Ordinary people also are still fudging figures to get a loan, Arthur Prieston, chairman of the mortgage fraud insurance company Prieston Group, told Reuters. He said: "The vast majority of the fraud we see is where people intend to occupy a property, but can't qualify for a loan. They'll do anything to get that loan approved."

 

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