Mortgage fraud is worst in the Western region of the country, according to a new report from the Federal Bureau of Investigation. The report said mortgage industry insiders are involved in four out of five cases.
The increased reliance on mortgage brokers has created opportunities for organized crime groups focusing on fraud, according to the FBI’s Financial Crimes Report to the Public – Fiscal Year 2006.
The agency said it recently consolidated all mortgage fraud programs into its Financial Institution Fraud Unit. The consolidation enabled more effective management over investigations, quicker responses to emerging problems and a better view of the overall mortgage fraud problem.
Data on mortgage fraud crimes is compiled through Suspicious Activity Reports, or SARs, filed by federally-insured financial institutions, reports from HUD’s Inspector General and complaints from the mortgage industry at large, the agency said. Much of the fraud, however, goes unreported and the true level is unknown.
Mortgage fraud is categorized as either fraud for profit, where a mortgage insider is involved, or fraud for housing, where the borrower is the perpetrator, the report indicated.
Mortgage industry insiders are involved in 80 percent of all reported fraud losses, and the FBI said it will focus its efforts in this area.
Other emerging types of fraud include equity skimming and identity theft.
SARs filed in the West represented 36 percent of all SARs during fiscal 2006, the FBI reported, while the Northeast was the lowest with 17 percent. The Central had a 25 percent share and the Southeast had a 23 percent slice.
But one-third of pending cases were in the Central region, the FBI said, followed by the West with 27 percent.
The agency said it investigated 818 mortgage fraud cases during the past fiscal year resulting in 263 indictments and 204 mortgage fraud convictions. Nearly $389 million was collected in restitution while $231 million was fined.
Cases touted in the report include one against Gerald Small and his Colorado-based Amerifunding and another against Brent Michael Barber and his company Midtowne Restoration LLC, and
Areas highlighted in the report that mortgage bankers should beware of include purchase transactions disguised as refinances, silent seconds where the seller never intends to collect the loan, and air loans, where a fake set of company phones are set up to verify fraudulent applications.
Mortgage fraud is reaching epidemic proportions and “the FBI has warned that it could reach levels that dwarf the Savings & Loan crisis of the 1980s in terms of its economic impact,” said Interthinx Inc. executive Mike Zwerner in an announcement today.
Interthinx said it has “shared its expertise” with the FBI, the Department of Justice, the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and other state and local agencies.
