Mortgage Fraud - The Crime of Our Time?
- fhaloanpros.com April 1, 2008
According to the FBI, mortgage fraud has rapidly increased over the last five to six years. In September of 2002, the FBI had 436 mortgage fraud investigations. As of March 2007, the FBI reported that it had more than 1,036 and that the number was rapidly increasing - an increase of 237 percent (and rising) in less than five years.
Over the past year and a half, the FBI and other federal agencies and departments such as the CIA, the US Attorney General, and even the IRS have become increasingly involved in investigating and prosecuting mortgage related fraud. (See FBI.gov). In fact, the US Attorney General’s office recently created the Mortgage Fraud Task Forces in high-fraud regions such as, for example, Western Pennsylvania. Additionally, State Attorney Generals are beginning to take more proactive measures to punish mortgage fraud criminals and deter would-be mortgage fraud criminals.
By way of illustration, since the former (and now defamed) New York State Attorney General Eliot Spitzer began filing civil suits against real estate agents, mortgage brokers, mortgage bankers and appraisers in 2006, other State Attorney Generals have apparently ramped-up their efforts to prosecute mortgage fraud criminals. According to NBC’s Los Angeles affiliate, in March, 2008, the California Attorney General’s office shut down a half-dozen lending companies who had allegedly pushed homeowners into “illegal and unconscionable loans.” The banks alleged of the mortgage fraud, bait and switch practices, forgery, and material misrepresentations had their bank accounts frozen and were enjoined from such illegal sales practices. According to California’s Attorney General, Jerry Brown, “As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans.”
By most accounts, the government efforts appear to be resulting in successful prosecutions at both the civil and criminal level. But, will these increased efforts by the government provide the lasting deterrent against mortgage fraud that is so desperately needed? The answer is likely no. As California Attorney General Brown suggests, while the real estate market continues its spiraling descent, many brokers, appraisers, and other real estate professionals will continue to feel increasing pressure to do whatever it takes to get loans consummated in this down market. There simply isn’t as much volume as there was two years ago. In other words, in the short term, we should expect mortgage fraud to continue to rise, despite the increased efforts by government agencies, simply because of the market conditions.
So, will there be a decrease in mortgage fraud once the market corrects and then begins to rise again? No. According to the FBI’s 2006 Mortgage Fraud report, during boom periods, high mortgage loan volume impacts expedited quality control efforts which often focus on production. Therefore, perpetrators may submit loans based on fraudulent information anticipating that the bogus information will be overlooked.
However, during a boom market, we should also expect the reporting and prosecuting of mortgage fraud to decrease. Why? Well, during a rising real estate market, home values are increasing and the chances of borrowers or lenders getting seriously burned (similar to the way many are being burned in the current market) significantly decreases; as does the probability that borrowers or lenders will report mortgage fraud. Although more fraud may be occurring during a “boom” market, there will be less reporting of it and therefore fewer prosecutions as a result of it.
Although it appears we are currently in a lose-lose situation, private industry leaders and the government will have the opportunity to determine how to develop more sophisticated models for preventing mortgage fraud before it occurs in the real estate market cycles ahead of us. Hopefully, there will soon be more effective measures in place, so we do not undergo such an industry-wide travesty again.
57 Responses to “Mortgage Fraud - The Crime of Our Time?”
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April 4th, 2008 at 7:54 pm
Interesting. I think we need government to step up there game to help prevent this kind of fraud even in prosperous markets. Borrowers have to be smarter to. They need to alert the authorities when they suspect fraud. And they need to get educated on mortgages and fraud, or get help from someone who does understand them.
April 4th, 2008 at 7:58 pm
I disagree lucas. Yes there is fraud during up markets but the authorities can only prosecute those crimes that are reported. If fraud does not hurt anyone in up markets, no one will report it. You can’t blame the authorities for not prosecuting crimes they don’t know about.
April 4th, 2008 at 8:01 pm
True Michael, but there are still a ton of victims and potential victims in prosperous markets. It may just take them longer to discover the fraud. I think that’s why everyone should educate themselves or get someone who is experienced in mortgages to help them understand what they’re getting into.
April 4th, 2008 at 8:16 pm
I found your blog on MSN Search. Nice writing. I will check back to read more.
Eric Hundin
September 25th, 2008 at 12:52 am
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Инспектор отдела кадров As of March 2007, the FBI reported that it had more than 1,036 and that the number was rapidly increasing - […….
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