FBI Cracks Down on Mortgage Fraud

The FBI and other authorities are finally waking up to the problem of mortgage fraud in this country. However, as with most federal agencies, they have allowed the large banks, the perpetrators of the biggest crimes, go unpunished, and are now focusing on loan applicants who lied on their loan applications.

According to the FBI, most mortgage fraud schemes revolve around a material misstatement, misrepresentation, or omission relating to the finances of a potential borrower. These statements for the basis of a lender or underwriter purchasing, funding or insuring a loan. These include false or stolen identities, false loan applications, straw buyers, inflated appraisals, kickbacks, and false supporting documents. The FBI classifies these schemes as fraud for profit in defrauding banks or lenders, and fraud for housing, where individuals misrepresent their income or other income in order to buy a house. These so-called white collar crimes are being investigated with vigor by the FBI and have lead to many grand jury indictments and several recent convictions.

Common Mortgage Fraud Scenarios

According to the FBI’s 2009 Financial Crimes Report, there are several common types of mortgage fraud schemes or programs, which include:

Foreclosure rescue schemes-where homeowners facing foreclosure are offered assistance to keep their homes, by transferring the title of the property to an “investor

Loan modification programs-where homeowners are told their mortgages can be modified for an upfront fee.

Property flipping-where property is sold after an inflated appraisal, involving false buyer information and kickbacks.

Penalties for Mortgage Fraud

The Fraud Enforcement and Recovery Act (FERA) was signed into law in 2009. In addition to increasing funds to law enforcement agencies, FERA increased penalties for mortgage fraud up 30 years in prison and a million dollar fine, and increased the statute of limitations from 5 to 10 years.

Victims of Mortgage Fraud

Many people have fallen victims of mortgage fraud. Some have lost their homes to foreclosure, had their credit rating ruined, and suffered unspeakable damage at the hands of predatory lenders. Robo signing, falsification of mortgage documents and affidavits, and the failure to follow Pooling Service Agreements in loan securitization and the issuance of mortgage backed securities has cast doubt on the ownership of many mortgages and whether the servicing lender even has the right to foreclose or collect on them. First and second mortgages have been combined as purchase money loans, which unscrupulous lenders still seek to collect deficiency balances after foreclosure, in states that prohibit collection by law. Lenders have duped people into mortgage loan workouts or due date extensions or advised them to go into default to apply for the HAMP program, only to end up foreclosing on them after receiving hefty payments.