Trey Bowden
The Edmond Sun
EDMOND
March 30, 2008 12:23 am
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In recent years the FBI has stepped up its investigation of home mortgage fraud. During recent investigations here in the Edmond market, it was discovered that several individuals involved in the sale and purchase of homes in Oak Tree were guilty and subsequently convicted of mortgage fraud.
Mortgage fraud has had a significant adverse effect on our nation’s economy. The recent knee-jerk responses from the nation’s lenders are in direct response to the rise in mortgage fraud. One-hundred percent financing is all but gone; risk-based pricing for all borrowers with a 719 or lower credit score; and the elimination of many reduced document or stated income programs are just a few of the recent changes.
From the public files of the FBI, I share the following account:
“Amerifunding was a Mortgage Brokerage owned and operated by Gerald Small in Colorado, which maintained two “warehouse” lines of credit, each at a large federally insured financial institution in the U.S. In order to support a lavish lifestyle, Small created fictitious loans to live off the lines of credit. The borrower information, name and Social Security number were invented. Eventually, one of the creditors asked for verification of identification thereby defeating the ‘invention’ process.”
“To deal with this, Small placed an advertisement for a $100,000+ Account Representative position at his company. Applicants eagerly completed applications inclusive of names, Social Security numbers and copies of driver’s licenses which Small wasted no time in utilizing for more fictitious loans. Investigation determined that Small had kited over $200 million in fraudulent mortgage loans and used the stolen identities of 47 job applicants to obtain mortgage funding for fictitious home loans, or “air loans” totaling over $21.5 million during a 24-month period.”
“Gerald Small engaged with others in a massive Kiting and Mortgage Fraud scheme in Colorado resulting in the conviction of six individuals, the seizure of almost $20 million in cash and assets, the restitution of two private jet aircraft, and losses to federally insured financial institutions of approximately $35 million.”
Mortgage fraud for the fiscal year of 2002 was $293 million. It dropped in 2003 to $225 million but nearly doubled in 2004 to $429 million. The year 2005 saw another doubling to just more than $1 billion and 2006 showed a small reduction to $946 million. (Reported in Mortgage Related Fraud SARs.)
The most common mortgage fraud indicators are:
• Inflated appraisals.
• Exclusive use of one appraiser by a lender.
• Sudden increases in commissions by lenders.
• Bonuses paid (at settlement or outside of settlement) for any fee-based service.
• Higher than customary fees.
• Falsification of loan application.
• Requests to sign blank loan application.
• Falsified supporting loan documentation (i.e., W-2, pay stubs, tax documents).
• Purchase loans disguised as refinance loans (requiring less documentation and lender scrutiny).
• Flipping property for guaranteed purchase prices.
Property flipping is when a property is purchased then falsely appraised at a higher value in order to be quickly sold. The inaccurate appraisal is what makes property flipping illegal and fraudulent.
Equity skimming is when an investor may use a straw buyer, false income documents and/or a false credit report to obtain a mortgage loan in the name of the straw buyer. After closing, the straw buyer signs the property over to an investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.
Tips to protect you from becoming a victim of mortgage fraud:
• Get referrals for real estate and mortgage professionals.
• If it sounds too good to be true, it probably is.
• Be wary of strangers and unsolicited contacts, as well as high-pressure selling approaches.
• Carefully examine all written information including appraisals.
• Make sure the name on the documents matches your identification.
• Never sign any loan documents that contain blanks.
TREY BOWDEN is a licensed mortgage professional in Edmond.
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