Tuesday, May 20, 2008

Mortgage Fraud - New Analysis Of A Rising Fraud

Mortgage fraud is clearly on the rise. Although there is no central way to track the total extent of the problem, the FBI received 46,717 Suspicious Activity Reports related to mortgage fraud last year—compared to 35,617 in 2006 and just 6,936 in 2003. Only seven percent of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this seven percent was $813 million. The FBI’s caseload has also escalated. By the end of fiscal year 2007, the FBI was handling just over 1,200 mortgage fraud investigations—a 47 percent increase from 2006 and a whopping 176 percent increase from 2003.

… The downward trend in the housing market will continue (see forecasts provided by the Mortgage Bankers Association in the report), providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.

… The subprime lending crisis is a contributing factor to mortgage fraud, both directly and indirectly. Subprime loans, designed for people with poor or limited credit histories, now represent more than 13 percent of all outstanding loans—double the percentage of five years ago. These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75 percent from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by borrowers anxious to qualify for loans, both of which contributed to fraud.

… The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were: Florida, Georgia, Michigan, California, Illinois, Ohio, Texas, New York, Colorado, and Minnesota. The north-central region had the largest share of mortgage fraud, followed by the west and southeast regions.

.. The latest mortgage scams run the gamut: from “builder-bailout” schemes where developers unload excess inventory through financial trickery…to foreclosure rescue frauds that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes…to identity theft that leads to home equity credit lines being opened and drained. See the report for more details.

The report also briefly recounts our proactive response to the problem, including our participation in the Department of Justice’s Mortgage Fraud Working Group, through which we are helping to identify large-scale industry insiders and criminal enterprises conducting systemic mortgage fraud...our work in multi-agency mortgage fraud task forces and working groups around the country...and our recent “Mortgage Fraud Summit” to discuss the issue with special agents nationwide.

mortgage fraud

1. I am a Real Estate Agent representing an REO/Corporate seller. We are under contract on a home that was listed at $169,900. I ended up with multiple offers and sold the property quickly. The buyer that is under contract was under contract with a conventional loan closing at the end of this month. All of the sudden, I received out of the blue, an FHA addendum from the buyer’s agent asking me to forward to the seller for signatures, etc. Well, being a foreclosure sale, this home was sold as is, had several repair issues and sold for well over list price. I knew that it would not qualify for an FHA loan and I knew that the seller would never sign for the FHA Addendum. The buyer’s agent (and the lender and appraiser were ok with this) just wanted me to give the buyer permission to go in and fix all of the items that came up on the FHA Appraiser’s report that needed repaired(faulty wiring,broken window, rotten door frames,etc)then the appraiser said that he’d go back out take new photos, etc, send in a new report and we could close as scheduled. The agent said they’d done this before and it hadn’t been an issue with other agents. Well, I know my sellers and I know they do not allow access to the properties or any improvements before closing, this sounds like a type of fraud issue or could be a red flag issue to me, what do you think? I told him NO so now he is going to see if he can go conventional and I’m going to have to go back out to the property to make sure that he hasn’t actually started making repairs, because I’ve had those kind of problems before. Thank you!

   Posted by  on  05/21  at  03:19 AM

2. i doubt it would be fraud..if the seller is allowing him to...and fha will require repairs to be completed prior to closing, then it makes sense.  it woud be different if it were a HUD home (they never allow repairs always sold as is) and then the seller were to go in there and do the repairs without huds consent.
   if the sellers do not agree, then the ywill just have to back out of deal. if that is the case, it would be smarter for the seller to let him do the repairs.
   now i do think that the repairs have to be made by the seller and that is shere it can get shady. because if the repairs are made by buyer and deal does not close, the buyers arae going to probably expect to get their money back for repairs.

   Posted by  on  05/21  at  05:41 PM