Thursday, August 28, 2008

What is Mortgage Fraud?

This is a follow-up on the $1 billion of mortgage fraud post. Mortgage Fraud is an often used term so it is interesting to know what exactly it encompasses. The FBI has a list of indicators of Mortgage Fraud. There are several different types of fraud perpetrated by several different actors. Here is the FBI's list -

Inflated Appraisals
• Exclusive use of one appraiser

Increased Commissions/Bonuses - Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees

Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application

Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms

Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances requires less documentation/lender scrutiny

Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple "Holding Companies" utilized to increase property values.
There are several areas that are limited to the business side of the transactions - mortgage lenders, loan originators, real estate agents, and appraisers. Some categories can be done solely by non-industry affiliated individuals such as flipping, falsifying loan records and having "holding companies" to increase values. Others categories need an industry accomplice.

But looking at the list, it seems almost impossible that only $1 billion of mortgage fraud occurred during the last ten years. In just our little real estate scam post the amount extracted was over half a million.

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