Mortgage Fraud Now Organized Crime Staple

Once the domain of home buying and home equity rip-offs, mortgage fraud is muscling in on foreclosures, reverses mortgages and insider trading related to mortgage securities. Here's how not to get taken.

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - Mortgage fraud has become a staple in today's organized crime circles.

Fraud associated with home loans first cashed in on the greed that came with the previously booming housing market, when some buyers would do anything to own a home.

The cons used falsified applications, inflated appraisals and other techniques to get home loans approved on the home buying end.

Now, mortgage fraud is taking advantage of vulnerabilities that come with the housing market's down cycle, including homeowners, down on their luck, who face losing their homes and would do anything to avoid losing their homes.

It's a real racket.

FBI Director Robert Mueller recently testified before the U.S. Senate Appropriations panel that the "tremendous surge" in mortgage fraud investigations has been so great he has diverted agents and resources from other areas of white collar crime.

Suspicious activity reports the FBI reviews for potential mortgage fraud have grown from 3,000 in fiscal year 2003 to 48,000 in fiscal year 2007. In 2008, the FBI is on track to receive more than 60,000 such reports.

The subprime crisis will only aggravate matters, Mueller testified.

"I'm not sure at this point we can see the extent of the surge," he added.

Fraud that once primarily used inflated appraisals, "flipping" schemes and identity theft ruses to target home buying and home equity growth is now muscling in on foreclosures, reverses mortgages and subprime loans.

The FBI says known organized crime syndicates, terrorists and recognized political activists are not currently associated with mortgage fraud, but the crime does come with the hallmarks of what is considered organized crime -- collusion, conspiracy, insider cooperation and now, identity theft, one of the newest growth sectors in organized crime recognized by the FBI.

"We are investigating more than 1,300 individual mortgage fraud matters. Perhaps more importantly, we have identified 19 corporate fraud matters related to the subprime lending crisis -- cases that may have a substantial impact on the marketplace," he said.

The racketeers are also using insider trading violations connected to risky loans and the investments spun off of those loans.

On the consumer level, one of the latest cons is a bold one called "House Stealing". A con artist assumes the identity of a homeowner and transfers the deed into the con's name or sells the home outright -- even while the owner is still living there.

A variation on House Stealing includes the con artist preying on homeowners having mortgage troubles. The con promises to refinance the mortgage, but instead buys the home using a fake identity.

Mortgage fraud hotspots include California, Texas, Arizona, Florida, Ohio, Michigan, and Utah.

Now that mortgage fraud is considered a staple in organized crime circles, how can you avoid getting caught in the web of crime?

• Don't be a rube. If it sounds too good to be true -- it probably is. Debts, bad credit and other financial holes didn't appear over night. They won't magically disappear over night.

• Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques. Avoid spam come-ons and web-based advertisements promoting the elimination of mortgage loans and credit card and other debts for an up-front fee to prepare documents to satisfy the debt. Beware of offers to "save" you from defaulting on loan payments or from foreclosure. Beware of zero-down loans and falsely altered information to qualify you for a loan. Don't borrow money you can't afford to repay.

• Don't be cajoled into making false statements on loan applications including overstating your income, the source of your down payment or the nature and length of your employment.

• Ask family, friends, co-workers and others you trust who also recently completed a satisfactory mortgage, for referrals to mortgage and other real estate professionals. That applies to loan modifications, work outs and "restructuring."

• Always shop for a lender by comparing all costs and terms. Don't be sucked in by lenders who tell you they are your last chance at home ownership.

• Don't sign blank documents, documents containing blank sections or documents you don't understand. Get help from trusted individuals to go over the terms of the deal.

• Examine for accuracy recent comparable sales, tax assessments and other documents that offer evidence of a home's true value.

• Review a property's title history to determine if the property has been sold multiple times recently and within a short period. That could be evidence the property has been "flipped" which can cause artificial value inflation.

• Do your home work and research home prices in the neighborhood before beginning the leg work of home buying.

• Obtain credit and financial counseling, attend home buying classes, seminars or workshops and otherwise bone up on your home buying education before taking the plunge.

• More on real estate industry fraud.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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