From foreclosure frauds to subprime shenanigans, mortgage fraud is a growing crime threat that is hurting homeowners, businesses, and the national economy.
Mortgage fraud schemes employ some type of "material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan." The FBI compiles data on mortgage fraud through suspicious activity reports (SARs) filed by federally-insured financial institutions, reports received from the Department of Housing and Urban Development-Office of the Inspector General (HUD-OIG), and complaints received from the public and mortgage industry at large.
While a significant portion of the mortgage industry is void of any mandatory fraud reporting and there is presently no central repository to collect all mortgage fraud complaints, SARs received from financial institutions have indicated a significant increase in mortgage fraud reporting. The FBI works closely with the Financial Crimes Enforcement Network (FinCEN) in sharing analytical strategies and trend data that both agencies develop from SARs.
The FBI investigates mortgage fraud in two distinct areas: fraud for profit, and fraud for housing. Fraud for profit is sometimes referred to as "industry insider fraud" and the motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious properties. Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then repurchased several times for a higher price by associates of the "flipper."
Predatory lending typically affects senior citizen, lower income, and challenged credit borrowers. Predatory lending forces borrowers to pay exorbitant loan origination/settlement fees, sub prime or higher interest rates, and in some cases, unreasonable service fees. These practices often result in the borrower defaulting on the mortgage payment, and undergoing foreclosure or forced refinancing.
Mortgage fraud indicators:
- Inflated Appraisals - Exclusive use of one appraiser
- Increased Commissions/Bonuses—Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees
- Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application
- Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms
- Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances requires less documentation/lender scrutiny
- Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple "holding companies" utilized to increase property values