Q-and-A with a reformed mortgage crook

Kevin BarnesKevin Barnes made a lot of money by cheating the system to give homebuyers fraudulent loans that they couldn't afford. Once the FBI knocked on his door, he lost his money, his freedom and became a convicted felon.

Barnes had worked in the lending industry for about six years when he was convicted on federal charges of mortgage fraud.

"I produced over 1,500 loans over a five-year span with an average of two false statements contained per application," he says.

He was part of a fraud ring that made $124 million in fraudulent loans. Barnes learned his lesson, he says.

He was released from parole in 1997. About 10 years ago, Barnes started Mortgage Fraud Awareness, a consulting company that trains lenders on how to detect and prevent mortgage fraud. He has taught classes to FBI agents and Federal Deposit Insurance Corp. examiners.

Now, the reformed crook has tips to protect you from fraudsters like the man he used to be.

The interview was conducted at a Mortgage Bankers Association conference on fighting fraud. It has been edited for clarity and accuracy.

What type of mortgage fraud should borrowers be aware of these days?

It's hard to say, because the consumers need to be aware of all of it. They need to be smart to what's going on. When a loan officer or somebody says, "We'll fill this in later, let's just go through this," don't allow them to rush you through. Deal with somebody you know, somebody you trust, somebody reputable. Be careful with somebody coming into the industry. Even big-name companies -- there's an opportunity for bad people to work for those things. Just know who you're dealing with. Go by referral. Referral is probably the best way.

When you committed mortgage fraud, did you tell some borrowers what you were doing?

Some borrowers knew upfront. They knew that they couldn't afford this, and we told them we could make this work for them.

Were they concerned about it?

No, because we made them at ease. We said, "We'll take care of this so it doesn't fall back on you." We never read them that line on Page 4:

Standard residential loan application, Section IX

The consumer should actually get the original residential loan application. The consumer should fill it out because if the consumer doesn't fill it out, Johnny Loan Officer is filling it out with information that might not be relevant to you but relevant to him, to his benefit. And this is the acknowledgment that every consumer should read:

Standard residential loan application

Do you think most borrowers fill out the loan application themselves?

No, I think they are coached on how to fill it out. I believe that the consumer is told, "All I need is your name and address, Social Security number and they will pull the rest of the information from the credit repositories and we will import that information." You need to just do it by hand and keep a copy of it. Because if you have a car loan that you are co-signing for somebody and they don't put that on there, what happens is that's called undisclosed debt and it's illegal, and if the loan officer knows about it and he doesn't put it on there, they hold you accountable, too. So just put it all on there.

Did any of the borrowers that you assisted get in trouble?

No, just the fraud ring. They had no desire to go after them.

Who did you have in the ring?

Credit, appraisers, title, PMI (private mortgage insurance), anybody we needed.

What does a fraudster look like? What does a fraudster act like?

He doesn't. He drives no attention to himself. Do I look like a fraudster? I don't.

With the purchase market coming back, what kind of mortgage fraud do you think we are going to see in the near future?


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