Mortgage Fraud Increasingly Common in Mississippi, Nation

The once-booming housing market and rising popularity of non-traditional home loans have produced an unwanted byproduct, according to the Jackson Clarion-Ledger: a 35 percent increase in mortgage fraud.

A new report by federal regulators indicates the fraud involving mortgages is perpetrated by people seeking to buy homes, or others in conjunction with brokers and agents who cheat the system.

The Treasury Department’s Financial Crimes Enforcement Network, known as FinCen, released its first report on mortgage loan fraud, which is said to be one of the fastest-growing white-collar crimes in the country.

The agency decided to conduct the review after seeing a significant rise in the number of so-called suspicious activity reports — forms most often used to report suspected money laundering — that it received from U.S. banks concerning home mortgage loan fraud.

The sample of 1,054 reports looked into by FinCen came from financial institutions in all 50 states, the District of Columbia, Puerto Rico, Guam and American Samoa. The highest incidences of suspected mortgage fraud in 2005 were in California, Florida, Georgia, Illinois and Texas.

“We have plenty of mortgage fraud in Mississippi,” Assistant U.S. Attorney Cindy Eldridge said Friday night.

Eldridge said cases usually involve an out-of state lender working with a broker handling the entire deal.

“If somebody tells you that you can get a house with no money down and you can get cash back at closing, it probably is not legitimate,” she said.

FinCen found that suspected home mortgage fraud measured by reports filed continues to grow, rising by 35 percent in the first quarter of this year from the January-March period in 2005 — possibly because of “increased awareness of the potential for fraud in a dynamic real estate market.”

Although growth in the housing market appears to have cooled in ‘06, opportunities for fraud are still present. The use of false statements by prospective home buyers and identity theft were cited in a number of the reports banks filed to FinCen.

Fraud poses a growing risk to many a mortgage lender. U.S. regulators have said that mortgage fraud is growing because it can be very lucrative and easy to perpetrate, especially in areas where home prices have been rising rapidly and demand for home mortgage loans has skyrocketed.

While some people engage in mortgage fraud because they want to qualify to buy a home by inflating their assets, others use more sophisticated schemes and are driven purely by profit motive, and have no interest in the property for themselves.

Fraud often involves the loan application process or the property appraisals required for mortgage approvals. Increasingly popular exotic loans, such as an interest-only mortgage, which can allow borrowers to obtain mortgages with less documentation of their income and assets, or bring heightened risk of default, can inadvertently facilitate fraud.

The growing use of the Internet and telephone to process applications means a lender may never meet its borrowers, enhancing the potential for fraud.

The more intricate schemes — appraisal fraud, fraudulent flipping of property, use of straw buyers and identity theft — often are committed with the complicity of real estate industry insiders like agents, mortgage brokers, appraisers and title insurance companies. Some fraud is not evident until the loans go delinquent.

In Mississippi, the U.S. Attorney’s Office has prosecuted mortgage brokers, appraisers, lenders and real estate agents for mortgage fraud.