Mortgage fraud flourishes in down markets
Some people might think that the only victims of mortgage
fraud are the lenders who finance the shady deals. Fulmer, who now works with
Atlanta-based Interthinx investigating mortgage fraud for lenders, knows better.
Crime started to go up in her neighborhood; drug dealers and pimps moved in. There
was even a shooting.
Plus, because of the inflated sales prices,
property taxes went up by 30 percent. In neighborhoods where fraud has taken its
toll and many houses are in foreclosure, those houses usually are sold at a significant
loss. That makes it virtually impossible for legitimate owners to sell their property.
Fulmer says she's just now starting to see legitimate real estate values in her
neighborhood, 10 years later. Plus, many fraudsters steal the identities of people
with good credit to perpetuate the fraud.
of innocent victims is astounding," she says. "The biggest tragedy is
people who live in neighborhoods who do nothing, and it just shows up on their
doorstep one day," she says. "It's a nightmare."
If that weren't bad enough, the fraudsters have expanded from just greedy mortgage
brokers and real estate appraisers to dangerous criminals, such as drug smugglers,
"You can get just as much money at a closing
(as in a drug deal), and no one is shooting at you," she says.
extent of mortgage fraud isn't fully known; the FBI estimates that lenders lost
about $1.5 billion to the crime in 2006, but that's only the crimes reported through
Suspicious Activity Reports, and only federally insured agencies are required
to submit those, Fulmer says.
The crime comes in several forms. One common type is borrower
fraud, when a person lies on a mortgage application about his income, the source
of his down payment or how long he's been employed. With the high cost of housing
and the popularity of stated-income loans, it can be tempting for a person who
is desperate to get into a house to fudge the numbers to make the loan work.
of the borrower fraud is being tacitly encouraged by real estate professionals
who should know better, says Miami-based real estate attorney Oscar Rivera.
have (mortgage originators) who look at an application and tell (borrowers), 'If
you could show us these three things, we might be able to get you into this other
program,'" Rivera says. "When you tell someone, 'This is federal mortgage
fraud,' they just sit back and look at you. There's a whole undercurrent where
people aren't thinking it's that big of a deal. It's a violation of federal banking
regulation. You can be indicted and go to jail."