Mortgage fraud may never go away, and frankly it seems as if the fraudsters are becoming increasingly creative and brazen. The 2014 LexisNexis® 16th Annual Mortgage Fraud Report (lexisnexis.com) seems to agree with the sentiment, saying: “The reduced volume of consumers who are able to qualify for mortgage loans has led to a fiercely competitive and, in some ways, familiar Fraud for Profit marketplace… Ultimately, fraud and misrepresentation, especially in the mortgage application process, is likely to remain a serious and ongoing national problem.”
The LexisNexis® Mortgage Fraud Report indicated that 74% of reported loans in 2013 involved some form of application fraud or misrepresentation. The increase included the misrepresentation of credit information, including credit history and references. Appraisal fraud was reported to be at a five year low; which is most likely due to the implementation of the appraisal Home Valuation Code of Conduct that reformed the relationship between the lender and the appraiser.
Although the LexisNexis® Mortgage Fraud Report ranked Florida and Nevada number 1 and 2 respectively for mortgage fraud during 2013, don’t think that other regions are immune from scammers and schemers. Mortgage fraud can pop up anywhere. For example, I am local to the Maryland area, which is ranked 9th in mortgage fraud; which has a Mortgage Fraud Index of 110, that indicates there was more fraud than would have been expected from the number of mortgages originated.
A July 21st news release from the Maryland District of the U.S. Attorney’s Office (justice.gov/usao-md) reported that a Bethesda MD man pleaded guilty to conspiracy, wire fraud, and aggravated identity theft that stemmed from a mortgage fraud scheme. The scheme defrauded lenders to the tune of $3.8 million by using the names of immigrants and students, as well as false financial information, to buy almost three dozen row houses in Baltimore – all are in default or foreclosure.
The scheme used “straw purchasers” to purchase the homes. The defendant told them that he would prepare mortgage applications, manage the property after purchase, and promised 80% of proceeds of a future sale. Besides paying the straw buyers cash after buying homes, the defendant also paid them for referrals of other potential straw purchasers.
In another case, a former Maryland real estate agent was recently sentenced to 57 months in prison and ordered to pay $2,482,856.05 in restitution for conspiracy to commit wire fraud and aggravated identity theft that stemmed from a mortgage fraud scheme. According to a March 31st news release from the Maryland District of the U.S. Attorney’s Office, the defendant and his co-conspirator help straw buyers obtain mortgages by “using stolen or false identities, false documents – including W-2 forms, earnings statements, and bank statements – and false credit information…” Straw buyers’ credit worthiness was fraudulently enhanced by creating fictitious lines of credit. The scheme also included inflated appraisals and false contract addenda to direct payments for repairs that were never made.
And it’s not just the usual suspects who are the perpetrators. The MERS scandal that erupted in 2010 not only let us see behind the wizard’s curtain of mortgage lending, but it also brought to light the notion that mortgage fraud can occur at any level. An asset manager, of a commercial mortgage special servicer located in Bethesda MD, pleaded guilty to wire fraud “in connection with a scheme to steal over $5 million from his company,” according to the Maryland District of the U.S. Attorney’s Office. The April 22nd news release described how he redirected funds intended to be applied to defaulted commercial mortgages.
Copyright © Dan Krell
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