Copy for Real Estate Guide Column for 9-24-10
REAL ESTATE PATTERNS
By Ken DuVall

MORTGAGE FRAUD ON THE RISE

New data shows that mortgage fraud- which got tougher to pull off after the collapse of the housing market- is returning in a big way.

The Wall Street Journal reports research firm CoreLogic examined 7 million home loans made by hundreds of lenders showing losses from mortgage fraud, ranging from falsified credit reports to identity theft, rose 17% last year after declining 57% in the previous 2 years. In 2009, $14 billion in U.S. home loans were originated using fraudulent application data. The actual losses won't be known for several years until the banks become forced to write off the bogus loans.

The FBI in June indicted a Phoenix man for mail and wire fraud among other crimes when he tried to steal a house from his landlord! Also in June, federal prosecutors in New Jersey charged 29 defendants—including 12 real-estate agents, 4 mortgage consultants, an appraiser, a bank employee and a mortgage broker—with wire fraud in a scheme involving 17 properties in the state showing losses of $5.5 million.

In one common con, scammers recruit "straw buyers" accomplices with good credit to apply for "no-doc" loans, which require no documentation or proof of income, to “buy” their house. Good credit was required because lenders do at least check a borrower's credit score, even if they didn't require pay stubs or bank statements.

When the bank funded loans, the schemers and the fake buyers would split the profits and walk away, leaving the house to fall into foreclosure and the banks stuck with the losses. No-doc loans are a thing of the past. Lenders now require borrowers to furnish proof of employment, tax forms, credit reports, bank statements, etc.

But fraudsters have adapted to those new restrictions. With banks less apt to lend to borrowers with shaky finances, criminals rely more on falsifying documents, recruiting loan officers and other bank insiders to work for them, and stealing identities to get loans.

According to one federal indictment unsealed in June, while a Mr. Buencamino was renting a Mr. Weaver's house in Phoenix, he intercepted mail for Mr. Weaver, obtaining his social security number. He then got a driver's license in Mr. Weaver's name!

With the help of a friend working as a loan officer at a local Compass Bank branch, Mr. Buencamino obtained a $245,000 cash-out mortgage on the property. A homeowner using a cash-out mortgage refinances the loan for more than the current mortgage and pockets the difference in cash. Mr. Buencamino, not surprisingly, couldn't be located.

Fraud continues to be a pervasive issue, growing and escalating in complexity. Application fraud—in which borrowers falsify their names, where they live, how much money they earn, their employment, their debt or their assets—remains high, accounts for 59% of all mortgage fraud.

One of the defendants in a New Jersey FBI dragnet, a mortgage consultant, paid accomplices $15,000 apiece to steal the identities of local residents earning $90,000 or more and who had good credit ratings. She then used those identities to obtain 2nd mortgages on a number of homes in the Newark area. But since good credit ratings are no longer enough to get a mortgage, the defendant also needed insiders actually employed by the lenders to pull off the caper.

When the going gets rough, the rough turn crooked. Watch your back, people. Guard your identity.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.