Mortgage Fraud Being Prosecuted Despite Little Reporting

The government, which includes the CFPB, the FBI, the FDIC, and local and state authorities are still handing out indictments and convictions for mortgage related financial crimes.    States like Florida, Georgia, Illinois, New Jersey, and Nevada are seeing scammers get smarter, even as the processes and compliance back ups used to catch them are becoming more advanced by the day in what used to be an industry unwilling to change prior to the crisis.

Mortgage Fraud

Mortgage Fraud is widely considered the hardest crime to prove because you need an element vital for conviction: motive and knowledge. The person(s) committing these acts must have knowledge that they are committing the crime of defrauding an institution or private party in order to be charged.  Now the government , in not so many words, have their own two types of fraud.  The first,  fraud for housing, is not typically prosecuted.

Can I Get Prosecuted For Housing Mortgage Fraud?

When a buyer falsifies his or her employment and or alters his or her own W2 for the sake of purchasing a home they intend to live in, the feds and or banks generally will not proceed with charges.  If they claim they will occupy the residence as an owner occupied, in order to get a better rate with a lower down payment and looser guidelines, simply to buy that house or have someone else occupy it for their profit, that is another story.

Types Of Mortgage Fraud

What are the most common types of fraud: occupancy is one. People who were losing their home would knowingly recruit a family member or close friend to purchase the home from them at an inflated agreed upon price, where the proposed seller would give the higher sale proceeds as an incentive to the buyer, and keep some for him/herself.     They would then agree on a side deal to continue making payments while that payment history would report under the relative’s credit report.  Eventually, a large number went into FC eventually.  Lenders and appraisers are required to inform and or know when this is a non-arms length transaction (where buyer and seller already know each other).

Appraisal Mortgage Fraud

Appraisal fraud is common too.  Even after HVCC, which is where appraisals where ordered through an automated system eliminating any cohesion or communication between realtor/loan officer/appraiser.   In  order to get a value, you need comparable sales, which translation means(looks like house,  similar model, size, close too, and recent sale)   These attributes are what determines the likelihood the house will sell and is worth that same price.   Well during the crisis,   investors, sometimes many at once, would buy homes in distressed areas for 5-40k under an LLC.  They would then presumably fixe the home up and bring in a straw buyer, or a person who had little motivation to live in the home other than they would be getting money under the table.  They would list the home for 250-375k(actual examples) and when enough buyers bought into the scam, you had an artificial market created in what is truly a distressed areas that those values would never support, much less the rents in that area.  This used to be common with condos back in the day, but with stringent FHA no spot approval, less than 20% of condo units in many cities even have FHA approval for financing.   These businesses could get away with this for some time, as they would continue to set up a new LLC every few months and pick different areas not yet targeted before authorities and watch dog groups would catch on.

Elderly Abuse Mortgage Fraud

Elderly abuse/fraud.   In the reverse mortgage world,  These investors would buy a home for similar prices as stated above, then get a senior to live in the house and go onto title for a few months(FHA requires 90 days to do reverse on title).  they would then refinance into a reverse with a payoff to a loan no knows even exists(where is this payoff coming from?).   The appraisals in reverse go off value, but the loans go off maximum borrowing, so the older someone is, the more they get back as they are  less likely to outlive what they take out as cash or an equity line.

What Determines Mortgage Fraud?

In order for fraud to be a crime in relation to lending, a wire or  money has to exchange hands.  This typically happened at a title companies’ office or attorney’s office.    A closer orders wire on a transaction at lest one of the parties involved knows is not for the purposes disclosed, and you have fraud.   Federal sentences for wire fraud can range from 3-15 years.    The more you commit, the more time you get and the more fines you have to pay.
Bottom line. the more you dig into fraud you realize it is not about being desperate when guidelines contract.  Rather it is about one’s constant need to subvert rues in place.   There was rampant fraud before the crisis, when you didn’t need to commit it.   Why in the World did people have to lie about W2’s when stated was available?  Why lie about occupancy when high LTV non owner was available?  The answer is simply some people would rather cheat the system(outlaw mentality ) then play by its rules.   The best answer I hear is: well the banks and Wall Street are worse.  Maybe so, but that is not a defense the judge or jury typically want to hear when your case is called.

This Article Was Written By:

Ron Granado

Account Executive | Plymouth Title Guaranty Corp

1301 W. 22nd Street | Ste 505 | Oak Brook, IL 60523

630-300-3900 | ron@plymouthtitleinsurance.com | www.plymouthtitleinsurance.com

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