FBI Releases Mortgage Fraud Report
Saturday, May 24, 2008
by Michael Peron
Tweet
Kerri Panchuk
The Federal Bureau of Investigations (FBI) had 1,204 mortgage fraud cases under investigation in 2007, 321 mortgage fraud-related indictments, 206 convictions, $595.9 million in restitution orders and $21.8 million in recoveries, the bureau concluded in its Financial Crimes Report to the Public, Fiscal Year 2007.
The FBI attributed some of the more recent fraud cases to the current structure of the mortgage market which allows lenders to sell off loans once they've purchased them.
The FBI says, “as initial mortgage products are repackaged and sold on secondary markets, the sale of the mortgages in many cases conceal or distort the fraud, causing it not to be reported. Therefore, the true level of mortgage fraud is largely unknown.”
But suspicious activity reports (SARs) related to mortgage fraud seem to suggest the number of incidences are definitely growing.
In the year 2005, there were 35,000 SARs, a number that increased to 46,000 in 2006. And, in just the first quarter of this year, 14,916 SARs were made—a number that the FBI believes could grow to 60,000 by the end of this year.
According to the FBI report, it seems many of the perpetrators of fraud are industry insiders who have a “fraud for profit” motive to bilk financial institutions out of money.
The FBI explains, “Fraud for profit is sometimes referred to as 'Industry Insider Fraud,' and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80-percent of all reported fraud losses involve collaboration or collusion by industry insiders.”
Fraud for property is another type of gaming the system, which occurs when homeowners lie on mortgage applications.
Below is a complete list of the types of fraud the FBI is now focusing in on:
Property Flipping – buying a property, falsely appraising the value, and then selling it for more profit
Silent Second – a property buyer borrows a down payment from the seller through a non-disclosed second mortgage. The lender believes the borrower has put his or her own money down as a down payment; however, the money is borrowed and the second mortgage may never be recorded which prevents the primary lender from finding out about it.
Nominee Loans/Straw Buyers – a borrower's identity is sealed through the use of a nominee who allows the borrower to use his or her name and credit history to apply for a loan.
Fictitious/Stolen Identity – a stolen identity is used on a loan application.
Inflated Appraisals – An appraiser is in on the scheme and works with a borrower to present a property at an inflated price.
Foreclosure Schemes – perpetrators find borrowers about to lose their homes and convince them they can save their homes by transferring over their deed and paying up-front fees. The homeowner pays the perpetrator each month, and then the perpetrator re-mortgages the property and pockets all the money paid by the homeowner.
Equity Skimming – an investor collaborates with a straw buyer who purchases a property using false documents and fake credit reports. After closing, the straw buyer signs the property over to the investor in a quitclaim deed which relinquishes all rights to the property and provides no guaranty of title. The investor does not make any mortgage payments on the property and rents it out until the property enters foreclosure.
The FBI attributed some of the more recent fraud cases to the current structure of the mortgage market which allows lenders to sell off loans once they've purchased them.
The FBI says, “as initial mortgage products are repackaged and sold on secondary markets, the sale of the mortgages in many cases conceal or distort the fraud, causing it not to be reported. Therefore, the true level of mortgage fraud is largely unknown.”
But suspicious activity reports (SARs) related to mortgage fraud seem to suggest the number of incidences are definitely growing.
In the year 2005, there were 35,000 SARs, a number that increased to 46,000 in 2006. And, in just the first quarter of this year, 14,916 SARs were made—a number that the FBI believes could grow to 60,000 by the end of this year.
According to the FBI report, it seems many of the perpetrators of fraud are industry insiders who have a “fraud for profit” motive to bilk financial institutions out of money.
The FBI explains, “Fraud for profit is sometimes referred to as 'Industry Insider Fraud,' and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80-percent of all reported fraud losses involve collaboration or collusion by industry insiders.”
Fraud for property is another type of gaming the system, which occurs when homeowners lie on mortgage applications.
Below is a complete list of the types of fraud the FBI is now focusing in on:
Property Flipping – buying a property, falsely appraising the value, and then selling it for more profit
Silent Second – a property buyer borrows a down payment from the seller through a non-disclosed second mortgage. The lender believes the borrower has put his or her own money down as a down payment; however, the money is borrowed and the second mortgage may never be recorded which prevents the primary lender from finding out about it.
Nominee Loans/Straw Buyers – a borrower's identity is sealed through the use of a nominee who allows the borrower to use his or her name and credit history to apply for a loan.
Fictitious/Stolen Identity – a stolen identity is used on a loan application.
Inflated Appraisals – An appraiser is in on the scheme and works with a borrower to present a property at an inflated price.
Foreclosure Schemes – perpetrators find borrowers about to lose their homes and convince them they can save their homes by transferring over their deed and paying up-front fees. The homeowner pays the perpetrator each month, and then the perpetrator re-mortgages the property and pockets all the money paid by the homeowner.
Equity Skimming – an investor collaborates with a straw buyer who purchases a property using false documents and fake credit reports. After closing, the straw buyer signs the property over to the investor in a quitclaim deed which relinquishes all rights to the property and provides no guaranty of title. The investor does not make any mortgage payments on the property and rents it out until the property enters foreclosure.
