Georgia Mortgage Fraud Problems Fixed; Utah Takes Over Top Spot

Georgia no longer leads the nation in cases of reported mortgage fraud.
After four straight years at the head of the pack, the state will lose that dubious distinction for 2006 when new data from the Mortgage Asset Research Institute (MARI) is released in May, according to MARI founder Jim Croft.

Preliminary calculations put Georgia as low as No. 8, with the Utah mortgage markets taking its place as the new No. 1.

“In 2002, Georgia had five times the national average in cases reported,” Croft said. “This year, [the Georgia housing market] is still highly ranked, but not far above the national average. Year-over-year, its improvement is the best in the country.”

Metro Atlanta has improved dramatically since 2002, as well. Through 2004, the region was No. 1 in early default payments - a leading indicator of Georgia mortgage fraud - but fell to No. 9 in 2005 (post-Katrina New Orleans placed first) and is holding steady for 2006.

Both the state and Atlanta have also seen a marked decline in fraud on bad credit home loans, said Croft, whose unit is part of Alpharetta-based ChoicePoint Inc.

Mortgage fraud occurs when one or more individuals materially misrepresent information on a mortgage loan application. Buyers, sellers, brokers, lenders, appraisers and closing attorneys - or people pretending to be them - can commit it and be hurt by it.

Experts say there are two reasons behind the drop in rankings:

1. A 2005 Georgia law that authorized felony charges and serious jail time for mortgage fraud, couple with more aggressive enforcement by federal, state and local authorities.
2. Higher reporting of fraud in other states as more become aware of the issue.

“The situation is improving somewhat in North Georgia,” said U.S. Attorney David Nahmias. “But we still have a serious problem, and the potential for it to get worse as the real estate market turns for the worse.”

Nahmias has made high-profile mortgage fraud prosecutions a top priority over the past few years. A federal jury in March convicted Phillip Hill and nine of his associates, who Nahmias said pilfered more than $41 million. And on April 10, mastermind Matthew Cox pleaded guilty to fraud in eight states. He faces up to 54 years in prison.

Fraudsters have been drawn to the Atlanta housing market because of the region’s rapid growth and gentrification, said John Maggi, owner of Marietta forensic appraisal firm John Maggi & Associates.

“By buying an older property and fixing it up and selling it, you can easily make 150 to 200 percent profit very legitimately,” Maggi said. “But they’re not satisfied with that.”

The perpetrators are often career criminals - drug traffickers, armed robbers or identity fraudsters who decide mortgage fraud is a safer way to make their fortune - said state assistant attorney general David McLaughlin.

“Why risk getting a bullet in the back of your head during a drug deal when you can do this?” McLaughlin said.

McLaughlin’s preferred method of shutting down fraudsters is to catch them at the closing table. They may be white-collar crooks, but they don’t always go down easy. Sometimes they’re armed. It took four officers to subdue one, who stood 6 feet 5 inches tall.

McLaughlin’s office works in concert with the state banking department, which may take administrative action on top of the state’s criminal charges.

Before the 2005 law, assessing fines and revoking mortgage broker or lender licenses was about all the state could do, said deputy banking commissioner Rod Carnes. It wasn’t enough.

“You had to prove some type of theft or RICO,” Carnes said. “And it was only a misdemeanor. Folks weren’t too worried about prosecution.”