Mortgage Fraud Is A Growing Problem
By Ilyce Glink Tribune Media Services (reprinted in the Arizona Republic, April 13, 2008)
In my world, mortgage fraud is mortgage fraud. But for fraud investigators, mortgage fraud divides into two categories: fraud for housing and fraud for profit.
Fraud for housing is when a borrower fudges the numbers on his or her loan application in order to be able to get enough money to buy a particular property.
Fraud for profit is when someone decides it’s his or her mission in life to steal money from financial institutions. There is typically more than one loan involved, and it’s likely that there is a ring of people engaged in committing fraud. Often someone inside a loan company is part of the operation. According to the FBI, insiders are involved with 80 percent of the cases the FBI is working on.
“Fraud for profit is the area law enforcement is focusing on because it represents the largest financial risk to government-regulated financial institutions,” said Merle Sharick, a vice president with Mortgage Asset Research Institute (MARI).
Although the emphasis is on fighting fraud for profit, there is renewed emphasis on fraud for housing now that many more of those loans are going bad, Sharick said.
“In the past, we haven’t worried so much about fraud for housing, as long as the borrowers made their payments,” he noted. But as the mortgage market gets tighter, everyone is taking a closer look at these loans.
Sharick acknowledges that fraud is a constant in the marketplace. “It’s not as obvious when times are good and property values are soaring,” Sharick said. “But when that changes, we start seeing stability of prices or even depreciation in some markets. Then, it’s different, and people become desperate.”
MARI recently published its 10th annual report on mortgage fraud, and found that Florida is at the top of the company’s fraud index. Nevada, Michigan, California and Georgia are in the top 10 states with the most mortgage fraud.
“Georgia has dropped down on the list because the state has enacted a number of new laws and has become more aggressive in prosecuting people who have participated in mortgage fraud,” Sharick said.
Florida has seen increased levels of mortgage fraud because a lot of European and South American buyers have bought investment property and because a lot of people have passed through, Sharick added.
“People have been coming to Florida and investing in condos and properties down there for a long time, and when their investment doesn’t work out, they find a way to take advantage either by flipping properties or getting a group of investors together to buy properties with very little money down . . . . that can fuel a mortgage fraud problem in a state like that,” he said.
Years ago, Sharick recalled, mortgage fraud was, by and large, limited to California, Florida and Texas and some states along the East Coast. Now, “it’s kind of spread across the country,” he added.
How big is the mortgage fraud problem? No one knows. The FBI has estimated that perhaps as much as $4.2 billion in mortgage fraud occurred in 2006.
Sharick said that financial institutions are hesitant to report loans they’re having problems with because it affects the amount of cash reserves they are required to have on hand.
How can you protect yourself?
Know whom you’re doing business with. Shop around and talk to a variety of lenders before you make a final selection. Once you select a lender, make sure the company is reputable and that it’s got your best interests in mind.
