Tough market spurs fraud

August 31, 2008|By KEN HARNEY | KEN HARNEY,

You might assume that, with home purchases and new mortgage volume off by 30 percent or more in many markets in the past year, loan fraud would also be down.

Wrong. A benchmark quarterly study released Aug. 25 by the mortgage industry's principal compiler of fraud reports, the Mortgage Asset Research Institute (MARI), found that the number of cases jumped by 42 percent between the second quarter of 2007 and the same period this year.

They ranged from hoked-up income verifications and credit reports to falsified employment records, financial assets illegally "rented" to buyers to beef up loan applications, inflated appraisals, straw-buyer scams and a wide variety of sellers' and purchasers' schemes designed to fool lenders. The highest second-quarter numbers of fraud reports were in Florida, California, Maryland, Illinois and Michigan.

Tough market conditions appear to actually increase pressures to commit fraud, says Merle D. Sharick, MARI vice president.

"Mortgage fraud used to be a crime of opportunity," he said in an interview. "Now, it's a crime of necessity for people who are desperate to maintain lifestyles they became accustomed to" during the housing boom years.

The Internet is a key facilitator of their activities, Sharick said, with "dozens of sites" online hawking fake income verifications, tax filings, credit scores, deposit verifications and other forms of deception. Some individuals have begun using free advertising services such as Craigslist to promote their wares, such as bank deposits that are available to home loan applicants to claim as their own on mortgage applications. In fact, the deposits remain in the total control of the scamsters; only the account identification is changed for a short time.

A scam that recently popped up online involved promoters trolling the Web for "straw buyers" - people with good credit scores and incomes who would rent their names and asset verifications for home purchases by unqualified buyers. In one case, said Sharick, straw buyers were offered $7,500 per transaction for their financial identities. Legal title subsequently was transferred from the straw buyer to the actual purchasers, who otherwise would have been rejected by the lender.

Web-based crooks tend to be nimble, creative and technically savvy. MARI and private lenders may flag online vendors to the FBI or state financial crimes investigators. But by the time they home in on the site, the sponsors often have covered their tracks electronically and moved on to new pitches.

At the other end of the spectrum, low-tech records systems maintained by some counties sometimes allow scam perpetrators to file faked documents that give them effective control of properties - at least temporarily.

"There are 3,800 county courthouses out there," he said, many of them with outdated systems, low budgets and staff, and minimal defenses against con artists. "For a $10 filing fee, nine out of 10 times [in those counties], they'll file whatever you want" - such as a faked lien-release from a bank or mortgage company indicating that a debt against a property has been paid, and no further lien exists. That, in turn, opens the door for criminals to load large amounts of new mortgage debt against the property with faked identities, or even to sell it for cash.

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