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Welcome Home: Mortgage fraud remains elevated

Butch Elich & Paula ParkerSpecial to the Daily

If you’ve followed the news during the past year, it’s no surprise that the latest report from the FBI shows that mortgage fraud remains at an elevated level, consistent with that seen in 2009, when it initiated its Operation Stolen Dreams program. In the overall fraud picture, title/escrow/settlement made up 14 percent of FBI cases opened in 2010. The main theme of the FBI’s 2010 Mortgage Fraud Report is that the housing market is in such bad shape, with elevated levels of foreclosure, delinquency, negative equity, unemployment, etc., that it’s only logical that mortgage fraud continues to be a problem, as these conditions breed fraud. The FBI reports that it had 3,129 pending fraud investigations in 2010, which is actually a 12 percent increase from 2009 and a 90 percent increase from 2008. Seventy-one percent on those pending investigations involved dollar losses totaling more than $1 million. The report also cited data from CoreLogic that says more than $10 billion in loans were originated with fraudulent application in 2010. At the title and settlement services level, the FBI reports that 38 percent of its field offices are reporting some form of title/escrow/settlement fraud. According to these reports, a majority of these frauds involve the “diversion or embezzlement of funds for uses other than those specified in the lender’s closing instructions.” Associated schemes include: “failure to satisfy/pay off mortgage loans after closing refinances; the reconveyance or transfer of property without the homeowner’s knowledge or consent; the failure to record closing documents such as property deeds; the recording of deeds without title insurance but charging the homeowner and absconding with the money; the use of settlement funds intended to pay subcontractors by general contractors to pay debts on previous projects; the use of dry closings; the delayed recording of loans; the filing of fraudulent liens to receive cash at closing; and the distribution of settlement funds among co-conspirators.” The FBI’s review of 2010 files shows title agents and settlement attorneys in at least 21 investigations in 14 field offices involved in the non-satisfaction of mortgage schemes. These people are engaged in misappropriating and embezzling more than $27 million in settlement funds for personal use. The report cites a laundry list of perpetrators, including: licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives and trust account representatives. They are people with a high level of access to financial documents, systems, origination software, notary seals and so on. And these perpetrators are committing a laundry list of schemes in addition to title, including: loan origination (62 percent), foreclosure rescue (2 percent), real estate investment (7 percent), equity skimming (2 percent), short sale (4 percent), commercial real estate fraud (4 percent), builder bailout (2 percent), bankruptcy fraud (1 percent), advance fee (2 percent), and foreclosure rescue (2 percent). The FBI concluded the top states for mortgage fraud in 2010 were Florida, California, Arizona, Nevada, Illinois, Michigan, New York, Georgia, New Jersey and Maryland. Mitchell Stein of the national law firm of Mitchell J. Stein & Associates LLP, commented in a release: “Incredibly, the fraud now involves brand new loans or loan transfers, where the banks are continuing to subject the American public to the same practices that started the meltdown in 2008 “Now that the FDIC and Department of Homeland of Security have reported at length on the problem, banks and bank servicers have become resilient and more sophisticated in their schemes,” he continued. Interthinx also released its quarterly Mortgage Fraud Risk Report, which covers data collected in the second quarter of 2011. This report tracks overall and type-specific mortgage fraud risk with an analysis of fraud risk from specific ZIP codes to state and national levels. The big story in this report the last several quarters was the dramatic increase in fraud in the Chicago area. According to the most recent analysis, fraud risk has decreased significantly in the Chicago metro area. Miami now ranks among the top 10 riskiest metropolitan statistical areas (MSAs) for three of the four type-specific fraud risks tracked in the report. “The recent decrease in mortgage fraud risk in the Chicago ZIP codes was as dramatic as it was sudden,” said Kevin Coop, president of Interthinx. “It suggests that when the industry has actionable intelligence and increases its scrutiny of an area, word gets out, and the fraudsters move on.” Miami, on the other hand, has experienced a resurgence in fraud risk and has been high on the list of risky MSAs for the past year. Like the rest of the state, Miami is struggling to get the problem under control, with five of the top 10 riskiest ZIP codes and eight of the top 20 in Florida. As for the rest of the country, the national Mortgage Fraud Risk Index remains elevated but has stayed relatively flat over the past year. Article is courtesy of the Land Title Guarantee Company. Welcome Home is written by Butch Elich & Paula Parker. You can find them online at http://www.elich.com.


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