FBI: Where There Is Opportunity, There Will be Mortgage Fraud


Fri, 2011-08-12

Mortgage fraud continued at elevated levels during 2010, according to the Federal Bureau of Investigations (FBI) 2010 Mortgage Fraud Report. The FBI, with its partners, dedicated significant resources to the issue of mortgage fraud over the past year and saw a number of investigative successes. The FBI feels that the current housing market will likely remain an attractive environment for mortgage fraud criminals in the near future who will seek new methods to circumvent loopholes and gaps in the mortgage lending market.

The objective of the 2010 Mortgage Fraud Report is to provide FBI program managers and the general public with relevant data to better understand the threat posed by mortgage fraud. The report was requested by the Financial Crimes Section, Criminal Investigative Division (CID), and prepared by the Financial Crimes Intelligence Unit (FCIU), Directorate of Intelligence (DI).

The FBI 2010 Mortgage Fraud Report found that mortgage fraud remained elevated in 2010 despite modest improvements in various economic sectors and increased vigilance by financial institutions to mitigate it. Although recent economic indicators report improvements in various sectors, overall indicators associated with mortgage fraud—such as foreclosures, housing prices, contracting financial markets, and tighter lending practices by financial institutions—indicate that the housing market is still in distress and providing ample opportunities for fraud. As unemployment remains high nationwide and housing inventory remains at the same level it was at in 2008, mortgage delinquency rates and new foreclosures continued to increase in prime and sub-prime markets.

Key findings of the FBI’s study included:

►Mortgage fraud continued at elevated levels in 2010, consistent with levels seen in 2009. Mortgage fraud schemes were found to be resilient, and readily adaptable to economic changes and modifications in lending practices.

►Those instigating mortgage fraud included licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives.

►Total dollar losses directly attributed to mortgage fraud are unknown.

►A continued decrease in loan originations from 2009 to 2010 (and expected through 2012), high levels of unemployment and housing inventory, lower housing prices, and an increase in defaults and foreclosures dominated the housing market in 2010. RealtyTrac reported 2.9 million foreclosures in 2010, representing a two percent increase in foreclosures since 2009 and a 23 percent increase since 2008.

►Analysis of available law enforcement and industry data indicates the top states for known or suspected mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey; reflecting the same demographic market affected by mortgage fraud in 2009.

►Prevalent mortgage fraud schemes reported by law enforcement and industry in FY 2010 included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.

►With elevated levels of mortgage fraud, the FBI has continued to dedicate significant resources to the threat. In June 2010, the U.S. Department of Justice (DOJ), to include the FBI, announced a mortgage fraud takedown referred to as Operation Stolen Dreams. The takedown targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in combating mortgage fraud.

This report is based on FBI; federal, state, and local law enforcement; mortgage industry; and open-source reporting. Information was also provided by other government agencies, including the U.S. Department of Housing & Urban Development (HUD)-Office of Inspector General (HUD-OIG), the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac, and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Industry reporting was obtained from LexisNexis, Mortgage Asset Research Institute (MARI), RealtyTrac, Inc., Mortgage Bankers Association (MBA), Interthinx and CoreLogic. Some industry reporting was acquired through open sources.


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