These schemes involve falsifying arnborrower’s financial information–such as income, assets, liabilities,rnemployment, rent, and occupancy status–to qualify the buyer, who otherwisernwould be ineligible, for a mortgage loan.  Freddie Mac is reporting that the loanrnorigination frauds they are witnessing include false documents, property flipsrnwith phantom rehabilitation, fictitious assets, and fabricated payrollrndocuments.  Freddie Mac reports therncontinued use of transactional “lenders” such as the “dough for a day”rnbusinesses that “loan” potential borrowers money to create assets forrnunderwriting due diligence. </p

In a backwards application scheme,rnthe perpetrator fabricates a borrower’s income and assets to meet the loan’srnminimum application requirements through inflated income, fictitious assets,rnand altered credit reports. </p

Perpetrators fraudulently inflaternproperty appraisals, often through overstated comps, to generaternfalse equity with which they will later abscond. Perpetrators will eitherrnfalsify the appraisal document or employ a rogue appraiser as a conspirator inrnthe scheme. </p

Illegal property flipping involves the purchase and subsequent resale of property atrngreatly inflated prices. The key to this scheme is the inflated appraisal whichrnenables the purchaser to obtain a greater loan than would otherwise be possiblernthen flip it to a buyer at the inflated rate. </p

Traditionally, any exchange ofrnproperty occurring twice on the same day is considered highly suspect for illegalrnproperty flipping and often is accompanied by back-to-back closings where arnpurchase contract and a sales contract that are both presented to the samerntitle company.  Property flipping isrnapparently occurring in 47 out of 56 field office territories.  Among other industry sources reportingrnsignificant property flipping, Interthinx reports that it is still prevalentrnand trending upward. Current property flipping schemesrnreported by Interthinx involve fraud against servicers; piggybacking on bankrnaccounts to qualify for mortgages; and forgeries. HUD reporting indicates thernuse of limited liability companies (LLCs) to perpetrate fraudulent propertyrnflipping.</p

Title/Escrow/SettlementrnFraud/Non-Satisfaction of Mortgage</p

Over a third of FBI field officesrnare reporting some form of title/escrow/settlement fraud. The majority of thesernfrauds involve the diversion or embezzlement of funds for uses other than thosernspecified in the lender’s closing instructions. Associated schemes include thernfailure to satisfy/pay off mortgage loans after closings for refinances; transferrnof property without the homeowner’s knowledge or consent; failure to recordrnclosing documents; recording of deeds without the title insurance paid for by thernhomeowner; and filing of fraudulent liens to receive cash at closing.</p

According to a review of FBIrninvestigations opened in FY 2010, title agents and settlement attorneys in atrnleast 21 investigations in 14 field office territories are involved inrnnon-satisfaction of mortgage schemes, misappropriating and embezzling more thanrn$27 million in settlement funds rather than using those escrowed funds tornsatisfy/pay off mortgages. </p

Real Estate Investment Schemes </p

Forty-three percent of FBI officesrnare reporting real estate investment schemes where perpetrators persuaderninvestors or borrowers to purchase investment properties at fraudulentlyrninflated values. </p

Short Sale Schemes</p

A real estate short sale is a pre-foreclosurernsale in which the lender agrees to sell a property for less than the mortgagernowed. One of the most common forms of a short sale scheme occurs when thernsubject is alleged to be purchasing foreclosed properties via short sale, butrnnot submitting the “best offer” to the lender and subsequently selling thernproperty in a dual closing the same day or within a short time frame for arnsignificant profit.  A recent CoreLogicrnstudy indicated that short sale volume has tripled from 2009 to 2010. In June 2010, Freddie Mac reportedrnthat short sale transactions were up 700 percent compared to 2008.</p

Industry sources report that in thernprocess of committing short sale fraud, fraudsters are manipulating the BrokerrnPrice Opinions (BPOs) and MLS; engaging in non-arms-length transactions; failingrnto record short sale deeds of trust; using back-to-back and multiple realrnestate agent closings; selling the property to a party the fraudsters controlrnand deeding the property back to themselves; engaging in escrow thefts, andrndozens of other mechanisms.</p

Commercial Real Estate Loan Fraud </p

Commercial real estate loan fraudrncontinues to mirror fraud in the residential mortgage loan market. Law enforcementrninvestigations indicate that perpetrators such as real estate agents,rnattorneys, appraisers, loan officers, builders, developers, straw buyerrninvestors, title companies, and others are engaged in same-day property flips;rnthe falsification of financial documents, performance data, invoices, taxrnreturns, and zoning letters during origination; the diversion of loan proceedsrnto personal use; the misrepresentation of assets and employment; the use ofrninflated appraisals; and money laundering.</p

Foreclosure Rescue</p

Perpetrators convince homeownersrnthat they can save their homes from foreclosure through deed transfers and thernpayment of up-front fees. This “foreclosure rescue” often involves arnmanipulated deed process that results in the preparation of forged deeds. Inrnextreme instances, perpetrators may sell the home or secure a second loanrnwithout the homeowners’ knowledge, stripping the property’s equity for personalrnenrichment.  Analysis of FBI intelligencernreporting indicates that foreclosure rescue schemes were the sixth-highest reportedrnmortgage fraud scheme in FY 2010 and comprised 2 percent of all FBI casesrnopened that year. </p

Advance Fee Schemes</p

Mortgage fraud perpetrators such asrnrogue loan modification companies, foreclosure rescue operators, and debtrnelimination companies use advance fee schemes, charging victims for servicesrnthat are never rendered, to acquire thousands of dollars from victim homeownersrnand straw buyers.</p

Builder Bailout Schemes</p

These are common in any distressedrnreal estate market and typically consist of builders offering excessive incentivesrnto buyers such as no-down payments, which are not disclosed on the mortgagernloan documents. </p

Equity Skimming Schemes</p

This occurs when perpetrators drainrnall of the equity out of a property by charging inflated fees to “help”rnhomeowners refinance their homes multiple times or obtain home equity lines,rnskimming the equity from the property and then encouraging the homeowner to usernthese funds for investment in various scams. </p

Debt Elimination/Reduction Schemes</p

FBI reporting indicates a continuedrneffort by sovereign citizen domestic extremists throughout the United States tornperpetrate and train others in the use of debt elimination schemes. rnVictims pay advance fees to perpetrators espousing themselves as “sovereignrncitizens” or “tax deniers” who promise to train them in methods to reduce orrneliminate their debts.  While they also target credit card debt, they arernprimarily targeting mortgages and commercial loans, unsecured debts, andrnautomobile loans. They coach people on how to file fraudulent liens, proof ofrnclaim, entitlement orders, and other documents to prevent foreclosure andrnforfeiture of property.</p

In the current economy efforts tornhelp distressed homeowners are also proving opportunities for mortgagernfraud.  Interthinx reports that propertyrnowners are fraudulently decreasing their income and property values,rnfabricating hardships, and filing false tax returns to get their debt reduced tornqualify for loan modifications. Individuals who first perpetrated fraudrnin loan origination are now attempting to defraud again duringrntheir loan modification.</p

CoreLogic reports that mortgagernfraud is becoming increasingly well-hidden and that lenders are reportingrnincreases in hidden frauds such as short sale fraud, REO flipping fraud, andrnclosing agent embezzlement. They are also seeing an increased frequency ofrnflipping and straw buyer schemes in FHA loans.</p

Victims of mortgage fraud are bothrnindividual homeowners and lenders.  Perpetratorsrntarget victims from across a demographic range, sometimes recruiting ethnicrncommunity members as co-conspirators and victims.  Perpetrators identify common characteristicsrnsuch as ethnicity, nationality, age, and socioeconomic variables, to includernoccupation, education, and income and target people who have access to toolsrnthat enable them to falsify bank statements, produce deposit verifications onrnbank letterhead, originate loans by falsifying income levels, engage in thernillegal transfer of property, produce fraudulent tax return documents, andrnengage in various other forms of fraudulent activities. </p

The current and continuing depressedrnhousing market will likely remain an attractive environment for mortgage fraudrnperpetrators who will continue to seek new methods to circumvent loopholes andrngaps in the mortgage lending market. The FBI, however, cites recent legislation asrnhaving the potential to curb fraud mechanisms such as the elimination of BPOsrnunder Dodd-Frank, features of the SAFE Act, and the partial prohibition ofrnadvance fees for loan modification services under the Federal Trade Commission’srn”MARS” Rule.</p

In June 2010, the Department ofrnJustice announced a mortgage fraud takedown referred to as Operation StolenrnDreams which targeted mortgage fraudsters throughout the country and was thernlargest collective enforcement effort ever brought to bear in combatingrnmortgage fraud.  It involved 1,215rncriminal defendants and included 485 arrests, 673 informations and indictments,rnand 336 convictions. The defendants were allegedly responsible for more thanrn$2.3 billion in losses.  The FBI currentrnsupports 25 mortgage fraud task forces and 67 working groups and continues tornfoster relationships with representatives of the mortgage industry to promoternmortgage fraud awareness and share intelligence. </p

The FBI says the continuingrndepressed housing market will likely remain an attractive environment forrnmortgage fraud perpetrators who will continue to seek new methods to circumventrnloopholes and gaps in the mortgage lending market. These methods will likelyrnremain effective in the near term, as the housing market is anticipated tornremain stagnant through 2011. Market participants are expected to continuernemploying and modifying old schemes and are likely to increasingly adopt newrnschemes in response to tighter lending practices.

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