Stealing Equity

During the housing bubble extracting equity was quick, easy and common. At one time having a second mortgage was a questionable practice - but during the bubble it seemed as if everyone had one. Lenders were giving them away like candy on Halloween - just ask and you receive with big reward for very little work. Many times things could be done over the computer and with a quick visit to a notary - never having to meet the lender in person.

If you needed equity right away with little documentation home equity loans or lines of credit during the bubble were perfect for you. But requiring little documentation with a fast turn around also made it ripe for fraud. It is no surprise that criminals flocked to an easy way to get large bundles of money. New Jersey became a good target due to its high property values and rapidly increasing property values. An article in the Star Ledger titled ID theft ring targeted N.J. home equity lines of credit discusses a home equity extraction ring that was recently busted. Lets take a look -

Four men were arrested yesterday in connection with an international identity theft scheme that siphoned at least $2.5 million from home equity lines of credit at dozens of banks, including at least 11 in New Jersey, authorities said.

The suspects targeted homeowners with big credit lines at large and small financial institutions, including Citibank, JPMorgan Chase and credit unions in Basking Ridge, Bridgewater and Toms River, authorities said. They used stolen personal data and technological tricks to fool bank employees into transferring funds to accounts in at least seven countries, authorities said.

...
In the days of easy mortgages, identity thieves targeted people with shaky credit, taking out illegal loans in their names from subprime lenders who required little documentation, according to the report. But the credit crisis hobbled that scheme, and the FBI report found identity thieves have turned to homeowners with good credit and deep home equity in places like the Garden State.

...
The alleged plot hinged on the personal information that is the bedrock of most identity theft scams -- Social Security numbers, mothers' maiden names and online passwords, authorities said.

...
Once armed with data, the men called banks and posed as customers. They used a dial-pad code to block the banks' caller identification system and asked to transfer big chunks from the victims' home equity lines. In one case, they moved $675,000 from Affinity Federal Credit Union in Basking Ridge to the Bank of Tokyo Mitsubishi, authorities said.

The system was ripe for fraud. Even without the technological tricks the system was easy to manipulate. Many mortgage brokers received their fees up front so they had no reason to evaluate or question the loans.

The system was easily manipulated by those with criminal intent. It also did not promote or require safeguards for customers - in many cases the layers of protection was discouraged because it would slow down the process.

During the summer we reviewed a three part series from the Miami Herald on the fraud perpetrated in Florida by loan originators - Part 1, Part 2, and Part 3. When questionable activities were being perpetrated by those within the system what real safeguards are those to prevent fraud from the outside.

Wonder if New Jersey will be a Hot Spot for Mortgage Fraud in the 2008 publication. Here is a map of the 2007 problem areas -