Widespread Alabama Mortgage Fraud Detailed

Darlene Hill was making a living in Mobile, Ala., as a real estate investor when she devised a sophisticated con against lenders across the Alabama housing market that would net her far more money than just robbing a teller with a gun.
By the time her enterprise collapsed last year, according to the FBI, she had bilked banking institutions and Alabama mortgage companies out of $9 million.

That is the amount law enforcement officials say the lenders lost in bad loans made as a result of bogus Alabama home loan applications.

And if not for the money that the companies recovered from foreclosures, the total loss would have been a good deal higher, investigators say.

Hill, 50, has pleaded guilty in Mobile’s federal court to wire fraud, but she disputes the prosecution’s loss figure. The judge will sort it out at Hill’s sentencing hearing, which is scheduled for September.

Chief U.S. District Judge Ginny Granade’s ruling will determine how long Hill will spend in prison as penalty for the widespread mortgage fraud.

Meanwhile, lenders and law enforcement officials alike are trying to figure out ways to counter a phenomenon that appears to be on the rise at a time when the FBI has shifted resources to other priorities.

The Mortgage Bankers Association estimates that fraud costs mortgage lenders between $1 billion and $4 billion a year.

“This is a huge problem for our members,” said John Mechem, a spokesman for the Washington-based association.

Experts contend that the damage extends far beyond lenders. Consumers get hurt, they say, when fraud artificially pushes up housing prices that eventually come crashing down.

In extreme cases, entire neighborhoods have been flooded with home loan foreclosure sales.

“It’s never good to have a lot of homes for sale - for any reason,” said Patty Bergstrom, a spokeswoman for the IRS Criminal Investigation Division in Atlanta, which is recognized as a hot spot for mortgage fraud.

“It affects a lot of people.”

Written plea agreements for Hill and his three co-defendants detail a conspiracy that used insiders to thwart the normal checks and balances designed to detect fraud in the mortgage industry.

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