ALERT: Mortgage Fraud on a Rise!

The CNN show Open House hosted by Gerri Willis reported about the increasing amount of mortgage fraud that has been on the rise on the hot Real Estate market. The Mercury News wrote an article about the same topic. They both explained the following:

On a recent judgment Shalonda M. received a 30yr sentence for a mortgage fraud scheme; which came to a cost many consumers almost 12 million and affected 100 plus properties. An Atlanta Attorney was also charged with identity theft, inflating appraisals and fraud; which cheated many homeowners and companies.

Last week the FBI arrested Martha R. and Edward S. who operated real estate and escrow agencies in Downey and Seal Beach and were charged with 10 counts of mail fraud in an alleged scheme that preyed on 70 homeowners facing foreclosure. These people would promise to “clean up” the homeowner’s credit by having a third party co-sign the refinancing papers, but the homeowners ended up losing title to their houses while these two people netted $8 million dollars.

Homeowners are in on it as well. Broker would put clients on a higher-than-normal interest rate. In return the broker would receive a high finder’s fee from the lender because these types of loans generate so much money for the lenders. To keep the homeowners quiet, the broker split the cost of the finder’s fee, which in turn they would use to make their monthly payments for a month or two. Many of the participating homeowners liked the idea that they allowed the broker to keep refinancing their loans every few months.

California regulators say they never heard of this case. The broker’s first lender victim was National City Mortgage, one of the country’s biggest lenders. Despite getting burned in the millions, neither National City nor Freddie Mac complained about the broker to California regulators.

The FBI officials reported that in the past 4 months (this was back in August 2005) there had been an estimated 600 million dollars in costs for the alleged cases prosecuted.

The sates more common in mortgage fraud are: California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia and Florida.

The FBI, IRS, HUD and other agencies have a joint program operation called “Quick Flip” in an effort to prevent and prosecute mortgage fraud.

Kurt Pfotenhauer, senior vice president of Government Affairs for the Mortgage Bankers Association (MBA), is working with law enforcement to train them therefore learn how mortgage frauds are being done. They are also attempting to educate lenders and their members to be on the lookout of different types of fraud. Much of the industry is not required to report fraud to regulators, so it doesn’t. Bill Denny, a deputy district attorney in Alameda County who prosecutes criminal real estate fraud, said, “Lenders never write to us and say ‘please pursue this case’”

Criminals see mortgage fraud as easy money!! Kenneth Donohue, inspector general of the department of HUD, warns about identity theft, foreclosure fraud, misrepresentation, flipping schemes, bogus appraisals, etc. Fraudulent people obtain inflated appraisal values, go back to the lender qualify a buyer and get them to buy with NO MONEY DOWN.

The market is cooling but fraud is increasing because there is high competition between lenders, brokers in small and big companies. In California, the agencies that monitor mortgage brokers don’t know the most basic facts about them, including how many brokers are operating in the state or how often there are complaints. FBI Assistant Director, Chris Swecker, said the regulation of brokers “has sort of fallen through the cracks.” This opens up the door wide open to trouble.

Mortgage fraud’s value was in the billions in the past year and so far 600 million in the past 4 months (this was back in August 2005).

It is advised to consumers to be alert of high pressure sales tactics, question appraisals with comparable sales around the same area of the sale/purchase, question people telling them something similar to “I can get you out of foreclosure problems, I got a great deal for you.” If it is too good to be true, it probably is.

If you happen to encounter something similar contact authorities right away and read everything you sign!

Experts say there is so much misrepresentation and outright fraud at this end of the mortgage market that lenders build the cost of fraud into the loan rates, much the way retailers raise the price of items that frequently are shoplifted.