Everyone gets hurt
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.

"The number 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, Fulmer says.

"You can get just as much money at a closing (as in a drug deal), and no one is shooting at you," she says.

The 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.

Forms of fraud
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.

Much of the borrower fraud is being tacitly encouraged by real estate professionals who should know better, says Miami-based real estate attorney Oscar Rivera.

"We 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."