Commentary and information about public safety and security, intelligence and counterintelligence, open government and secrecy, and other issues in northern Idaho and eastern Washington.

Location: Coeur d'Alene, Idaho, United States

Raised in Palouse, WA. Graduated from Washington State University. US Army (Counterintelligence). US Secret Service (Technical Security Division) in Fantasyland-on-the-Potomac and Los Angeles. Now living in north Idaho.

Friday, January 26, 2007

Mortgage Loan Fraud

Like many other areas of the country, Coeur d'Alene, Idaho, has experienced an explosive housing market. New homes have increased, and so have the prices associated with them. The nationwide housing boom coupled with low interest rates have spawned another boom: Mortgage loan fraud.

For a reader-friendly explanation of one type of mortgage loan fraud, see the USA Today online story Convicted con artist shows how system flaws could allow him to steal your home by Noelle Knox. The story was posted 1/24/2007 at 8:35 PM ET.

According to the US Treasury Department's Financial Crimes Enforcement Network's (FINCEN) November 2006 report titled Mortgage Loan Fraud - An Industry Assessment Based Upon Suspicious Activity Report Analysis:

Mortgage loan fraud can be divided into two broad categories: fraud for property and fraud for profit. Fraud for property generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known. The fraudulent activities observed in the SAR (suspicious activity report) narratives describing fraud for property include: asset fraud; occupancy fraud; employment and income fraud; debt elimination fraud; identity theft; and straw buyers (someone who buys property for someone else to conceal the identity of the true purchaser). Fraud for property is generally committed by home buyers attempting to purchase homes for their personal use. In contrast, the motivation behind fraud for profit is money. Fraud for profit is often committed with the complicity of industry insiders such as mortgage brokers, real estate agents, property appraisers, and settlement agents (attorneys and title examiners. Typical fraudulent activities associated with this category in the SAR filing sampling are: appraisal fraud; fraudulent flipping (buying and selling the same property in a short period of time intending to make a quick profit); straw buyers; and identity theft.
The linked FINCEN report covers all these topics in much greater detail. It also elaborates on emerging mortgage fraud schemes such as asset rental fraud and debt elimination fraud.

According to the Mortgage Asset Research Institute, Inc., "The Mortgage Bankers Association is giving anti-fraud initiatives a high priority. It recently announced that it will urge Congress to increase funding for new FBI agents and federal prosecutors devoted to pursuing mortgage fraud."

An examination of the FBI's May 2005 publication (pages D1-D12) titled Financial Crimes Report to the Public reveals the depth of the FBI's commitment to investigating mortgage loan fraud. It is also a good primer to educate readers about mortgage fraud indicators and common mortgage fraud schemes. It reports on some of the FBI's very successful mortgage fraud investigations.

Though mortgage loan fraud is most commonly associated with financing private residences, it is useful to end on this note: With only slight procedural variations, the same fraud techniques, indicators, and schemes apply just as well to the financing of commercial properties as to residential properties. In either case, the fraud is a crime itself. The proceeds from the crime, if not reported truthfully and accurately as illegal income on federal income taxes, brings the IRS Criminal Investigations into the investigation for violations of the Internal Revenue Code.