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Mortgage Fraud in America

Misreprentations on Loan Applications Plague the Lending Industry

Sep 23, 2008

Jail Cell Awaiting Manipulators, WhatImeanttosay

Mortgage fraud in America led to the recent crisis in the financial lending industry that was caused by misrepresentation and outright lies about income and employment.

Mortgage fraud has led to the largest financial debacle in the United States since the depression of 1929. The most common types of fraud are that of employment history, income, undisclosed debt, liens and judgments, and general manipulation of information to allow unqualified buyers to access the mortgage market. The result has thrown the real estate market into a slump and financial institutions in jeopardy.

Mortgage Fraud Government Investigations

Mortgage fraud government investigations are being conducted by a Mortgage Fraud Task Force which includes:

U.S. Department of Justice
Federal Bureau of Investigation (FBI):
U.S. Postal Service,
U.S. Secret Service
U.S. Department of Housing and Urban Development Office of Inspector General
Internal Revenue Service, Criminal Investigation Division

Mortgage Fraud Schemes

Mortgage fraud schemes are considered institutional or private crimes relating to the business of granting, marketing, or servicing home mortgage. Usually included are some type of material misstatement, misrepresentation or omission relating to the property or potential mortgagee. These mortgages have been packaged and resold on the secondary market which keeps the original fraud hidden until the borrower defaults or other problems connected to original mortgagee or property appear.

Mortgage Fraud Indicator

Mortgage fraud indicators as defined by the FBI include:

Inflated appraisals
Exclusive use of one appraiser
Increased commission/bonuses paid to brokers or appraisers
Bonuses paid for fee-based services
Higher than customary fees
Falsification on loan applications
Buyers told how to falsify applications
Buyers asked to sign blank applications or other forms
Fake supporting loan documentation
Purchase loans disguised as refinancing
Short term investments with guaranteed re-purchase
Investors used to flip property prices for a fixed percentage
Multiple “holding companies” used to increase property values

Mortgage Fraud Indictments

Mortgage fraud indictments have already taken place and there are still hundred or perhaps thousands of cases yet to be investigated and charges filed. Included are 14 corporations involved in subprime lending as part of the Subprime Mortgage Industry Fraud Initiative which was launched in 2007.

Typical mortgage fraud cases are:

David Alan Freelander of Norfolk, Virginia who was sentenced on charges of bank fraud and bankruptcy fraud in connection with a scheme that supplied false information to obtain a mortgage loan from Lehman Brothers Bank in the amount of $3.9 million so that a client could qualify for a loan.
Frederic I. Bowles, Jr. is being investigated for a fraudulent scheme to obtain bank loans for unsuspecting buyers of distressed Indianapolis properties for which he falsified loan documents and obtain inflated appraisals to get client the loans needed to buy the far less valuable houses he owned.
.Ralph Cioffi and Matthew Tannin, two former Bear Stearns hedge fund managers, were arrested in June 2008 for intentionally misleading investors in two funds that collapsed last summer.
Robert Green, New Orleans pleaded guilty to conspiracy to make false statements of obtain HUD insurance by preparing false tax returns for straw buyers.
Bobbie L. Brown Jr and 67 other individuals fraudulently obtained loans on 183 homes in Illinois, Nevada and California because of which lenders lost more than $24 million dollars.

The FBI is investigating about 1,400 hundred cases of potential fraud. The Agency has 42 mortgage fraud task forces in operation, employing 180 agents. So far, hundreds of people have been arrested as the investigations target crooked mortgage brokers, real estate agents and other industry officials

Sources:

Association of Certified Fraud Investigators (A.C.F.E.)

2007 Mortgage Fraud Report. www.fbi.gove

Mortgage Fraud. www.irs.gov

Mortgage Asset Research Institute (MRI)

Mortgage Bankers Association

Federal Bureau of Investigation (FBI): http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm

The copyright of the article Mortgage Fraud in America in Law, Crime & Justice is owned by Martha R. Gore. Permission to republish Mortgage Fraud in America in print or online must be granted by the author in writing.