FBI Hunts Down a Suspected 400% Increase in Mortgage Fraud

It may feel like the housing crisis is largely behind us, but the statistics show otherwise. Sales continue to slip in many areas, foreclosures remain at record highs, and late payments are still increasing.

It turns out that the types of crimes that began the crisis continue to perpetuate it. Interestingly, it’s the FBI that’s on the trail… now investigating 400 percent more cases of mortgage fraud compared to five years ago.

According to HousingWire:

“The FBI investigated more than 2,100 mortgage fraud cases in 2009. The OTS said at least 63% of all pending FBI mortgage fraud investigations during fiscal year 2008 involved dollar losses of more than $1m each.

“The OTS attributed the growth in the number of investigations to declining economic conditions, liberal underwriting and declining house values. ‘With the rapid growth of markets such as real estate and the development of new technology associated with refinancing and computer-driven underwriting methods, the opportunity for mortgage fraud continues to escalate,’ the OTS said…

“…The OTS noted red flags for a number of fraudulent mortgage schemes, including straw borrower schemes, ‘builder bailout’ schemes and flipping schemes. For example, in a straw borrower scheme, borrowers may purchase properties listed as primary residences but located outside their home state. Or an investment property may be represented as owner-occupied.

“In a typical ‘builder bailout’ scenario, OTS said, no-money-down sales may appear or silent second mortgages may be involved. Additionally, the sales price may be upwardly adjusted and the appraisal may be inflated. In a flipping scheme, the appraisal may be fraudulent and the buyer’s income may be inflated.”

It looks like in the housing market desperate times call for desperate measures. Although good times seemed to call for desperate measures too… which is only a bit ironic. Still, with criminals like Osama Bin Laden to track down, one has to wonder how far down mortgage fraudsters rank on the list of the FBI’s most wanted.

To read more you should visit HousingWire’s coverage of how FBI mortgage fraud investigations jump 400 percent in five years.


Rocky Vega,
The Daily Reckoning