“How Much Mortgage Fraud Is Actually Going On?”
Readers suggested mortgage fraud as a topic. “I’d like to see a discussion of how all the mortgage fraud and ‘price puffing’ will play out. I’m referring to the cases where buyer, seller, broker, and appraiser conspire to sell a property at an inflated value, with full intent of letting the home go into foreclosure and pocketing the money. Just a couple of months ago we didn’t really hear much about anything more than appraisal fraud (which seems rather innocent in comparison).”
“Recently there have been a number of news stories about large scale organized fraud (including Nightline, Denver Post, Rocky Mountain News, and OCFlipTrack deserves credit for uncovering an apparent scheme in OC). One story quoted a realtor asserting that there might be enough fraud of this sort to impact the median sales price for his area.”
“So my topic suggestion is - how much fraud of this sort is actually going on? And how will it affect the market long term? I assume that lenders will find a way to stop it eventually, but much damage has already been done - to lenders, MBS buyers, neighborhoods, the reliability of published data (not that the numbers were all that trustworthy anyway).”
A reply, “I am sure when it all comes out it will be shocking how much of this has gone on and how much it has helped drive prices.”
Another said, “It’s a very serious problem and the lenders have to do their duty. I’m concerned that some real estate seminar groups might be a front for sinister purposes. Watch who you give your social security number to. In fact, there is no reason for anybody to request your Social Security number at a seminar.”.
“Watch out for people that advertise that they are looking for someone to invest in real estate with them,(things like that). Beware of strangers that promise the world, beware of people you know that promise the world. Be careful of investment groups. I could go on and on.”
“Mortgage fraud has been a problem in Georgia. In May of 2005 the Governor signed the Georgia Residential Mortgage Fraud Act into law. Among other things, this law amends the Georgia RICO Act ‘to include residential mortgage fraud within the definition of racketeering activity.’”
“I have read that Georgia’s is one of the toughest residential mortgage fraud laws in the country. I would guess that as other states uncover similar levels of fraud, they will follow Georgia’s lead, and hopefully a lot of these criminals will be caught and brought to justice.’”
“The once booming housing market and rising popularity of nontraditional home loans have produced an unwanted byproduct: a 35 percent increase in suspected mortgage fraud.”
“A new report by federal regulators indicates the fraud is being perpetrated by people seeking to buy homes or others in cahoots with brokers and agents who cheat the system.”
“The Treasury Department’s Financial Crimes Enforcement Network, known as FinCen, undertook the review after seeing a significant rise in the number of so-called suspicious activity reports it received from U.S. banks that concerned mortgage loan fraud.”
“The highest incidences of suspected mortgage fraud in 2005 were in California, Florida, Georgia, Illinois and Texas.”
“Increasingly popular unconventional loans, which let borrowers obtain mortgages with less documentation of their income and assets can inadvertently facilitate fraud. And the growing use of the Internet and telephone to process mortgage loan applications means that lenders may never meet borrowers, enhancing the potential for fraud.”
“Although growth in the housing market appears to have cooled this year, ‘opportunities for fraud are still present,’ FinCen’s study says. Mortgage fraud poses a growing risk to banks and other lenders, it says. Federal banking regulators have said that mortgage fraud is growing because it can be very lucrative and fairly easy to perpetrate, especially in areas where home prices have been rising rapidly.”
Related question: Has there ever been a point in history when mortgage fraud was as rampant as it is today?
Probably not. But how do we even distinguish planned fraud from stupid FB’s?
That’s the thing it’s probably more stupid FB’s then it is fraud. Fraud in the industry has always been there we saw that during the last bust clean-up. The only difference between then and now is that you don’t have to fake the w2’s and have dummy companies to verify employment.
This opinion may differ between those who work in the lending industry versus those who do not, along similar lines to the differences in the belief that “real estate always goes up” between Realtors (TM) and the rest of the world.
The cheering from the gallery is effecting your vision again
Fully agree that there are more than enough stupid people out there to account for the current lending mess.
But I’m also thinking that the PUSH and PRESSURE from the lenders to put people into adjustables has been rampant this time around.
When I bought my house in the 80’s, I asked for a fixed and that’s what I got. No arguments from the bank.
Friends in Seattle had to ARGUE and FIGHT for their fixed mortgage a few years back. Lenders were absolutely pushing ARMs. My friend was smart/stubborn enough to need to understand the logic behind a thing before signing. So the lender was pushed into a corner by him trying to explain why the adjustable was better. I am sure my friend drove this guy NUTS with his questions and “need to know”. He grilled this lender for an hour before this jerk finally gave in a gave him a fixed.
Other friends in Bellingham had a great fixed mortgage for 3 years until they were talked into an adjustable a few years ago. Within a year their payments had risen to a point where they felt they needed to sell. And did.
Nobody ever called me back in the 80’s or 90’s to suggest I change my fixed to an adjustable.
Lenders went berserk with their greed for the extra money they could get pushing adjustables and were definitely NOT on the side of the consumer in this. They were actively working against the consumers’ best interests.
This greed for a few hundred extra bucks per loan and utter lack of concern for the customer exacerbated the whole problem, IMO.
One solution would be for Americans to begin to understand that these people are crooks, not professionals. Unfortunate but true.
I was wondering the same thing Ben. In the 89509 zip code in Reno where I grew up, a house just sold in late July for $710,000. It blows my mind. Granted the area is fairly nice, the homes IN NO WAY warrant those prices. This particular house last sold for $190,000 in the 90’s. There is something that is not right with this deal. I cannot fathom how it appraised out. These homes are worth high $300’s MAX. They are 1960’s ramblers ranging from 1800-3000 square feet on large lots. But by no means should they even be approaching three quarters of a million. The sale reeks of either fraud or the FB of all FB’s.
I know a few appraisers, and they have told me privately just what many have posted here. It’s a ‘hit the number game’ and nobody seems to be doing anything about it.
http://appraiserspetition.com/
so far 9300 apprasiers — the honest ones have voiced their comments.
Thanks for the link Louie. I saved that one to disk and will look up one of these folks when the time comes for an honest appraiser.
Ben,
Why not co-ordinate any of your Bloggers suspected fraudster perpetraters and send them to the FBI en block. I know of a few transactions taken from the MLS in Phoenix that look suspicious, and would be glad to add these to a list. Perhaps a large number of these transactions referred to the FBI would get some action.
Great idea.
I know of 3 on my block here in GA
I have found two in the Sacramento area. I sent them to the FBI, DRE and to the state office of appraisers. It has been 3 weeks. The appraiser’s office just called. I will follow up with the others next week. It is amazing that the agencies do not get on this much heavier. They may when the legislature starts to act on laws.
That’s the thing it’s probably more stupid FB’s then it is fraud. Fraud in the industry has always been there we saw that during the last bust clean-up. The only difference between then and now is that you don’t have to fake the w2’s and have dummy companies to verify employment. There’s no need for them
“The only difference between then and now …”
Oh really? We had another thread where some of your fellow lenders describing debt-to-income ratios over 50% as fairly routine these days. Can you say this was the case in previous booms?
And how about the amount of paper which stays in the lender’s liability column versus what gets sold and repackaged as MBS? Would you say this recently has been about the same as it always was?
If the lenders know the debt-to-income level is over 50% and still make the loan, how is this fraud? Stupidity probably, certainly poor lending practice but not fraud.
Maybe I should have said “scam” not “fraud,” as the deal clearly requires a bagholder, even if it is not illegal.
Same crap different wrapper GS.
Ex: whats the difference between lowering the 50% dti with fake w2’s and accepting over 50% dti. It would be a shame to have all those AE’s/LO’s going to jail for fraud when all they were trying to do was boost the banks coffers. Get the picture.
There’s nothing new going on here it’s just been wrapped differently.
Why not just say no if a borrower is clearly not qualified? I guess you wouldn’t make any loans then, though…
There’s a tremendous overlap, both motivated by greed.
But it seems to me that fraud should be defined broadly as any party in the transactions misrepresenting material facts in the pursuit of financial gain. Foolish buyers should be defined as purchasing a property that one cannot afford over the longterm.
To that end, there could be a fraudulent transaction where the buyer is a FB but isn’t a knowingly willing participant in the fraud. For example, the lender cherry picks an appraiser who will overvalue the home in order to secure financing but the FB is unaware that the appraiser’s price (and likely his purchase price) is grossly inflated. My guess is that such a scenario is the most common type of fraud that has occurred.
Hey, its all fraud if you package a loan knowing you are understating the risk to the final investor/bagholder .
It might be your mothers pension plan that goes under so your mother isn’t going to like the fact that the lenders just made up a pretty loan package to hide the real situation .
How do you think it was possible for guys like Casey and guys in prison , and dead guys to get countless loans . It was a lender/ agent not giving a damn making alot of money on commissions and alot of those scum agents helped the borrower fill out those liar loan application .
The big RE fraud used to be title fraud. This was especially rampant in the early to mid-1800s as the country was pushing westward. Kept lawyers in whiskey and drawers in the early days of the country. At least title fraud is not a significant problem today.
posted “How Much Mortgage Fraud Is Actually Going On?”
In my view about the same amount of Fraud that is going on in Iraq. Everybody everywhere is stealing everything. The Treasure is being looted, at home and away.
Sorry to raise politics, but it burns me. Back to loan fraud? I would say about 97% are bad loans since only 3% can aford the medium home. At least in So. Cal.
I see the Feds call for some reform has to nought. Imagine wanting to be sure someone could pay thier loan after it Adj’s.
I was chided for not understanding why the banks would not want to be repaided, since they resell the loans right away. They are aiding and abetting in the crime…. this will be way bigger than the S&L mess.
“I see the Feds call for some reform has to nought.”
It might be a lot easier at this point to just inflate a bit higher than historical average for a while, in order to make those overpriced homes look more reasonably priced. The trick is, how do you create wage inflation (to let incomes catch up with those home prices which are perched on the tentatively high plateau) that gets under the radar screen of the bond market? Is it necessary to somehow sup[ress bond yields from doing what they normally do when they smell inflation in the air?
suppress
I don’t think you could fool the bond market for very long, if at all. The sort of wage inflation you would need to make home prices reasonable would make the ’70s inflation look tame. The bond market would go nuts.
Maybe it happens as soon as our fearless leaders have most of THEIR assets in foreign currencies.
I’ve wondered about that too GS. Inflate what, and to what effect on other parts of the economy? I can see inflating things people consider necessities, but there will have to be deflation of discretionary goods - at least in my case.
Personally, my salary has not kept up with inflation. My expenditures for anything but (real) necessities has been decreasing every year for the last 6 years since I am pretty good about budgeting.
I realize I am not exactly the “average” consumer. However, if something that I consider discretionary gets inflated out of proportion to my income growth I just stop buying it. In my case, it ranges from not having gone to a movie theater in more than 5 years and taking a 3-day weekend vacation twice a year. I carry the max vacation allowed on the books at work in case I lose my job. An outgrowth from my aerospace engineering days in SoCal at the end of the 80’s.
Of course I spend even less for discretionary purchases when those things I consider necessities get inflated faster than my income growth. e.g., housing, education, medical insurance, etc.
Don’t get me wrong here, these are conscious choices I make since I strive to save 50% of my income. I could blow a wad of cash on crap, but why? I can barely stand to pay the ridiculous price for my cell phone service. No, I’m not Mr. Tightwad either, as the bartenders at my favorite dive sports bar will be the first to tell you. Guess I’m fortunate to have a blue-collar, frugal money mentality like my parents, even though I have a good paying white-collar job.
And what’s with the keeping up with the guy next door stuff?Geez, even I realize I’m just some random middle-aged white guy (MAWG). Even if I tried, whom am I going to impress?
GS, IMHO ,mortgage fraud is more rampant today than any prior real estate cycle .
The flood of reports coming out of Colorado is just the beginning, IMO. Why wouldn’t fraudsters be attracted to this industry. When they hear that hundreds of thousands of dollars are being lent with no-documentation, etc, it doesn’t take long to figure out how to play the system.
The question I have is, why didn’t the lenders tackle this head-on? Did they really believe that a perpetually rising tide would cover all this up?
Greed!
“When they hear that hundreds of thousands of dollars are being lent with no-documentation, etc, it doesn’t take long to figure out how to play the system.”
Just wait until the day when mainstream lenders adopt alternate credit scoring to solve the “no citizenship — no credit score — no loan” problemo in California!
——————————————————————————————
Realtors project housing boom if alternate credit scores adopted
By Garance Burke
ASSOCIATED PRESS
3:31 p.m. November 3, 2006
FRESNO – The slumping housing market could get a $200 billion boost from new immigrant home buyers if mainstream lenders start using alternative methods to score credit, a national group of Hispanic realtors said Friday.
Creditors like Citigroup Inc.’s Citibank see recent immigrants as a growing market niche, but those who lack Social Security numbers or legal status in the U.S. are often rejected by the three major credit bureaus.
A handful of new credit reporting systems already used by 200 real estate brokers, community groups and mortgage counselors nationwide allows them to calculate risk by evaluating a prospective client’s utility bills and rent checks.
Should the new reporting methods gain wider acceptance on Wall Street and among secondary mortgage lenders like Fannie Mae, housing markets in places like California’s Central Valley would stand to gain the most, the National Association of Hispanic Real Estate Professionals said.
http://www.signonsandiego.com/news/state/20061103-1531-wst-hispanichousing.html
Ben,
You could use the ‘moral hazard’ argument to explain this type of unchecked risk taking behavior. FNM and MBS essentially removed the risks from originators and distributed it onto other risk takers who bought CDS to distribute their risks onto other risk takers. The problem is risk as we know it has’nt suddenly dissapeared as evidenced by your fraud posts. In fact, b/c of the profusion and perception of risk free investments, investors are probably taking on more risks than they normally would and as a result risk exposure maybe at an all time high.
And they keep trying to invent new ‘pools’ of borrowers to keep the party going:
‘Creditors like Citigroup Inc.’s Citibank see recent immigrants as a growing market niche, but those who lack Social Security numbers or legal status in the U.S. are often rejected by the three major credit bureaus. A handful of new credit reporting systems already used by 200 real estate brokers, community groups and mortgage counselors nationwide allows them to calculate risk by evaluating a prospective client’s utility bills and rent checks.’
‘Should the new reporting methods gain wider acceptance on Wall Street and among secondary mortgage lenders like Fannie Mae, housing markets in places like California’s Central Valley would stand to gain the most.’
‘No law requires that buyers be in the country legally in order to purchase real estate, Acosta said. Citibank, for instance, doesn’t require that borrowers be citizens or legal residents of the United States, Citigroup spokeswoman Janis Tarter said.’
If they are giving California size loans to ‘recent’ illegal immigrants, how can they not expect more fraud?
Immigration is a tough enough issue to try to resolve without having financial institutions enter the mix. If such financing schemes becomes widespread, its only a matter of time before declaring general amnesty for illegal immigrants becomes a political necessity.
BTW I’m not against a general amnesty as a matter of principle. But its not an issue that should be influenced by the profit objectives of corrupt lenders, IMHO.
Right. How can a country deport somebody who was allowed to purchase a home? But furthermore, why would a bank want to risk lending money to someone who can just leave the country rather than service the debt? I know greed and desperation play a part, but this stuff is becoming more and more shady. And regarding lenders; My new telephone number found it’s way into the hands of countless mortgage lenders. I have been receiving no less than 5-10 messages per week on voicemail pushing various mortgage products. These automated messages are pushing low interest starter rates. I listen to them at times and the term pre-approved is often in their spiel.
In a fraud case usually the seller agrees to inflate a appraisal and kick back inflated proceeds to a buyer, verses a stupid buyer just overrpaying for a property . All you would have to do is review escrow accounts etc. and you could see big checks written to people other than to the seller , or the seller might kick back the money , but he still has to account for capital gains .The best defense against fraud is to put a limit on how much increase in value a lender is going to lend in a given year in a area . Also lenders need to know the areas they are lending in and know when a property is inflated beyond reason ,( of course that has been going on for the last 5 years ).There are other ways of telling that it’s a straw buyer,( but I don’t want to give that away ),and the lenders/appraisers should be checking for these red flags .Also Excrow companies could be very helpful in helping authorties get a handle on this sort of crime and they might be compelled to to that in the near future .
Fraud costs everybody whether it’s by higher taxes ,bail-outs ,lenders or secondary market investors loss , or maybe your local bank going belly-up ,identity theft ,etc.
The criminal rings that engage in large scale real estate fraud by real estate investment scams can be really evil taking people for everything they got on fake projects etc.or even taking people identity .
Just be careful with your financial affairs . Criminals are great liars so if anything sounds fishy and you don’t get the proper response or if it feels like someone might be getting hurt or someone wants you to cover-up something ,run the other way . Criminals need a mark .
“In a fraud case usually the seller agrees to inflate a appraisal and kick back inflated proceeds to a buyer, verses a stupid buyer just overrpaying for a property .”
Why not just inflate the price by ‘multiple fake bidders’ and not bother with any ‘kick backs’ at all.
Fake bids are out there even today. It got so bad in Australia they had to put up goverment laws to stop it.
Since then number of bidors has collapsed. One of the reasons RE market in Australia is diclining.
“But furthermore, why would a bank want to risk lending money to someone who can just leave the country rather than service the debt?”
1) They make money when the money is loaned.
2) They sell the paper on the secondary market.
3) There is no reason to believe they will suffer any negative consequences.
Actually, that is a trick question. The bank isn’t lending
“money” per se, it is lending Federal Reserve Notes. They made risky loans because the Federal Reserve wanted them to get more federal reserve notes circulating to prevent a collapse of the financial system after the equity bubble popped. The only brakes on the system are the fly-by-night hedgefunds underwriting Credit Default Swaps (insurance) on Mortgage Backed Securities. Now that the pileup is coming into view we are about to find out that those brakes are cheap, plastic immitation brakes. Yeehaa!
Guess what the solution to the problem will be? Yep, the same thing it always is…. more Federal Reserve Notes. The egregious will be punished and the others will be bailed out. The margin requirements for brokerage accounts have been loosened. Is that the whir of helicopters firing up that I’m hearing? Here comes Helicopter Ben with bales of green paper for every man, women, and child — just in time for Christmas. Ho ho ho!
Either you take a seat at the table in Ben’s casino or you will slowly slip into poverty. Don’t overplay your hand though. Too bad everybody is split and doubled down showing 14 on both hands.
The new border fence is throwing a wrench into all that
Don’t hold your breath waiting for that to be built.
While watching the news recently, they showed some footage of the fence being built. All of the workers shown were hispanic.
posted “While watching the news recently, they showed some footage of the fence being built. All of the workers shown were hispanic. ”
Comic George Lopez had some great jokes with that same punch line…. “who the hell do they think will build it” LOL, LOL…. he and you are both right!
No law requires that buyers be in the country legally in order to purchase real estate, Acosta said
Well of course, but’s that’s beside the point. Anyone can buy property in the US if they have the money. They don’t even have to set foot in the country.
The problem is that anyone is crazy enough to lend money to people who have no legal status to live or work in the country. As others have pointed out, that creates another interested party to lobby for an amnesty.
Ben IMHO I really think the fact that the lenders were selling off the loan packages, and they bought the idea that real estate will keep going up , they figured it wouldn’t be a issue if they approved loans .
The agent who put the loan package together usually submits it to a underwriter who is a salaried person . The agent who prepares the loan package who usually deals with the borrower is the person who gets the big commission .Now what do you think is going to happen . The underwriters were under pressure to hit the numbers and the agent/scum who was making the big bucks just gave them the pretty package they wanted to see .
Do you think that a system like that is a great check and balance system ?
Make no mistake , a loan agent ,(which usually deals with the public ,) knows if the loan is good or not or meets the requirements of the loan underwriting ,or the loans they offer .
Underwriters will pass a borderline loan if they think that it has merits or some strength . But come on , these loans where just made to look like they were loans worth taking a risk on .
People would go into foreclosure if they lost their job ,or if they had a bunch of medical expenses etc, but for people to go into foreclosure because they could never afford the loan payment to begin with is a new thing in this lending cycle .
“The question I have is, why didn’t the lenders tackle this head-on? Did they really believe that a perpetually rising tide would cover all this up?”
The short answer is because everyone was thinking about their own self-interest, i.e., if they were not at risk then so what (which I guess to some extent is true around here with some of the pleasure taken at other’s misfortune and stupidity).
The other is that in banking, the guy with the lowest standards sets the market. You either match him or he takes your business. And at the other end of the food chain, the wizards packaging the toxic waste into cdo’s and such are there to make hay while the sun shines. If/when things go badly they head off into the sunset with their bags of loot. The thing that’s really remarkable is that this crap gets funded. And I have to think a lot of it is through middlemen like hedge funds where the actual owners of the funds have no idea how much risk is being taken to justify the “2 and 20.”
While I’m sure there are some hedge funds that are fairly conservative, I think that there are a lot of them where the traders are faced with a “heads I win, tails you lose” scenario. Like Brian Hunter of Amaranth infamy, if your big loss takes your fund down, just take your loot and take a vacation for a few weeks, and then find someone else to back you again. It’s both unbelievable and fitting that he has a greater than zero chance of getting backed to run serious money again.
Add to the list of bubbles the one in hedge funds. There’s no way there can be that much alpha out there, and with all of that money chasing it a lot of it is probably already arbitraged away with the ultra low risk premiums.
While I’m sure there are some hedge funds that are fairly conservative
That’s a contradiction in terms guy. You want conservative, try Vanguard or Berkshire Hathaway.
First time poster. I’ve got a little trick for detecting the inflated variety of fraud. Go to http://www.foreclosure.com and enter your zip. Look at preforeclosures. Than go to a map site and look up the streets that show up multiple times. I have found one new neighborhood where almost all the homes are in some state of foreclosure. Here in Riverview, FL the zip is 33569. It can only be fraud when there are this many homes in one location. I know Kerry thinks we’re stupid (kidding) but the statistical probability just isn’t there for that kind of distribution of foreclosed homes.
Sometimes I wonder about the traveling band of locust that are buying up property in different places ,small towns etc. . Are some of those clowns part of a criminal ring or investment group criminal ring ,creating high % of foreclosures in one area ?
In Europe the “Mafia” buys to keep. They buy in order to wash funds by buying and starting small businesses that do very well, after they take over if you know what I mean. However, I could see how some criminal organizations would buy and then dump in order to keep cash they collected on the deal.
OT:
Some results of the 2005 bankruptcy amendments:
“Decreased bankruptcy filings: Anyway you slice it, bankruptcy filings are way off what they were before the 2005 amendments. Filing rates are perhaps 50% of what they were before the 2005 amendments. A qualified “perhaps” is in order because the difference depends on when you compare and how accurate one believes the filing statistics are. The National Association of Consumer Bankruptcy Attorneys and other consumer advocates predicts bankruptcy filings will return to their previous levels, but one wonders how much of that is wishful thinking to believe that a terrible law failed to have its intended effect. Mathematically, for bankruptcy filing rates to return to pre-2005 levels, there will need to be a surge of bankruptcy filings.
“Textual chaos: Every reasonable expert stated that the 2005 amendments would be a technical nightmare. That is proving to be true but probably even to a degree more than expected. Maybe I just lack imagine, but I have been surprised at the number and depth of the problems with the statutory language. If go into a restaurant and order frappe pudding and milk, I might get a chocolate malt, but I shouldn’t complain if the waiter brings me something else. As the supposedly faithful agents of the legislature, the courts need instructions they can understand. There always will be ambiguities, but the 2005 amendments left many more holes the typical statute.
“Law student interest: My law students seem less interested in pursuing careers in bankruptcy law, especially consumer bankruptcy law. After spending a semester learning that they have to vouch for their client’s schedules, can be penalized for slight missteps, and will have to navigate a minefield of statutory pitfalls for their clients, they get the message that Congress wants them to do something else.
“Bankruptcy court frustration: From a bankruptcy court poetically pondering the new penalties for failing to file schedules with “I do not like dismissals automatic” to the WWSD (”What Would Scalia Do?”) opinion about reforming the statutory text to deal with gaping holes, bankruptcy judges have been voicing their displeasure with the new statute. One court even declared Congress passed the statute as part of “an agenda to make more money off the backs of the consumers in this country.” What will this mean for the future of the bankruptcy judiciary? The 2005 bankruptcy amendments made it less appealing to be a bankruptcy judge. When jobs are less appealing and there is no increase in pay, don’t we get fewer applicants and fewer quality applicants?”
Consumer bankruptcy isn’t any fun anyway. It’s boring and annoying. Corporate Chapter 11s are the real meat.
Great thread topic. I hope that our lender types, including MDMORTGAGE, will chime in with some examples.
I have no specific knowledge of the kind of fraud that is mentioned in the article but i will provide some of the standard “cheats” in the system. (pls note i have never done any of this, i am very good at sales and have never had a need to cheat to win)
I have a friend in the business who has software for altering appraisals. Appraisers typically will pdf their finished work to the loan officer (not the underwriter). This LO can go in and change the comp sale prices and all of the adjustments to his liking to make the loan work. Apparently, the software was designed specifically for this purpose. SO if someone took the time to create it and sell it, how many do you think are using it?
An old school fraud technigue is to visit your local Staples and purchase blank w-2 and paystubbs and then fill them in to your liking. This was usually done by LO’s in the 90’s but, now even the borrowers have caught on and are doing it themselves. They usually suck at it though cause they A) pay themselves in round numbers aka $52,000 even or B) dont correctly calculate witholdings such as FICA and such.
YEt another is cut and paste credit scores. Take scores from one credit report and paste them over another’s lower scores and copy on a copier.
There are probably a hundred others i could list but, most require an intimate knowledge of the industry and are minor tweaks. It has always been my thought that investors deliberatly price in some cheating when structuring loan limits and parameters. In other words, say they really think they can tolerate debt ratios of 55% for a given product. They will make the allowable debt ratio to be 50% knowing that some clever people will get some things by them.
As i mentioned before though, i dont employ any of this. There is enough good honest business out there without having to risk ones employment or criminal record. Also, i work for bank not a broker. We have systems in place to sniff out any of it if some one tried to pass it thru us. Dont get me wrong though, im still a slimy LO.
Prior to 9/11 I didn’t need to maintain a security clearance for my employment, but now I do. Fortunately, I have acquired the skills to earn my way without ever having to lower my standards or commit criminal acts. Many of these scams you describe here will eventually ruin these perpetrator’s ability to earn a living, and then the general public will have to support them; it’s only a matter of time.
I don’t know , when I was in the business I never resorted to knowingly passing a bad/fraud loan and I took my job serious that part of my job was to prevent this .
I’m glad I haven’t been in the business in the last 5 years because I would of been blowing my mind with what has been going on in the industry I think .Oh well , the horse is out of the barn now and everybody gets to see what happens when you just throw all caution to the wind in lending .
I do have to wonder. Many more jobs demand security clearance like background checks. e.g., a friend of mine works IT for a Pharmaceutical company and his background check was about as intense. (and the FBI did participate). So I’m thinking many of the scamers have locked themselves out of good jobs for 7+ years.
The general public has an attention span of 2 weeks on a hot topic. Since most won’t get caught, most won’t care.
the fraud in the system is everywhere. the examples above by mdmortgageguy are spot on. this type of flat out blatant fraud went on for years by all parties concerned. i have had wholesale investors fire their entire underwriting staff, or even better the entire wholesale staff leaves for another wholesaler. so you have fraud at the borrower level, the loan officer level, the wholesalesaler and then the securitizer. yuuuuuuuck! you can already see (by new century’s friday numbers) how badly the cmo/cdo market has misjudged the level of defaults, this downturn is turning real ugly real fast. i recall comfed savings bank in massachusetts getting closed down by the feds in the late 80’s, with bank officials being led out in handcuffs. this time around the problem is gargantuan in comparison and there will be nobody to cuff.
I have been following this topic closely as A number of transactions in the small town I’m interested in were’nt making sense.
Most recently a house listed for 1 million sold for 2.4.
A couple of months later the same thing happened in the neighbouring town.
I did a little research (isn’t the internet great?) and voila, same buyer, same agent.
Needless to say I am following these guys closely. One more such deal and the FBI will be hearing from me. Like it or not.
What towns are these, Otto?
BayQT~
Otto– nice thought…… but hopeless. Sorry, but these guys have been given a license to steal. The ONLY way to get the Federales interested in it is to suggest that bad evil foreigners (read: terrorist / terrorist funder) are doing it. The FBI and mucho sources have highlighted the drop in aggressive pursuit of virtually all areas other than the terrorist theme. As I recall, it falls under the “Law of Unintended Consequences”.
Of course, if you go back to the 9-11 reports to see how many $ it took for that, it coulda been netted w/ a couple of good flips.
Sorry–soapbox off.
Soapbox —ON.
Gotta love Google… Sorry, only one flip woulda been (or Bin) required.
Page 172, http://www.9-11commission.gov/report/911Report.pdf
“As noted above, the 9/11 plotters spent somewhere between $400,000 and $500,000 to plan and conduct their attack.”
And for that, no wire transfers, etc., etc.
Otto,
Why wait for a third fraud, two is enough, in fact one is enough. Let the FBI know or as suggested in an earlier post, let Ben compile a list of as many suspicious deals as possible and send them all to the FBI.
Your gut feeling is right I think . I would turn them in now and maybe the FBI can follow them and catch them in the act on the next one .
It’s huge right now. This site http://www.mortgagefraudblog.com/ cites a 1,411 percent increase in SAR’s related to morgtgage issues just to 2005, not including 2006. That’s a tenfold increase for those mainstreamers who are scratching their heads at this news. You need only read the papers to see fraud rings collapsing everywhere. I’ve said for a while now that this is a massive, understated problem, and the lenders will really bleed from this. Secondary trauma will be inflicted on home prices, which will drop precipitously with the new regulations, increased scrutiny and steady prosecutions.
If it stays under wraps, so to speak, then nobody will panic. Unfortunately, we’re two months away from year-end and 4th quarter results for the mortgage brokers and lenders. I expect they will be forced to report catastrphic results or they will refuse to report at all, or delay the reports like Freddie and Fannie. Panic will ensue once someone on Wall Street finally understands they’ve been buying securitized bags of sand, not gold.
from anecdotes “from the trenches” both agents and lenders the amount of mortgage fraud in NYC, outside of Manhattan, is ENORMOUS with all parties pocketing a lot of unreported cash. You cannot have these kind of shennanigans driving the overheated market without dire consequences. Maybe Mr.Bloomberg knows this and is shuffling his tax/investment cards accordingly……
You can blame greed, low rates etc. But as far as I am concerned this whole mess could not have occurred without the banks, mortgage brokers and appraisers who facilitated it. I dont care about supply and demand, if the money is not there values could not have risen like they did!
Mortgage fraud will fix itself. Investors and banks that get stuck with these loans will get sick of losing money and start looking carefully at each deal. Suddenly, the loan money available to fraudsters will dry up. If the industry wants to keep losing money, then I say its a free country and let them.
I don’t agree. The problem is that groups like Citibank and Wells Fargo want to dump this stuff on Fannie/Freddie, so it is the taxpaer making the loan. From above:
‘Should the new reporting methods gain wider acceptance on Wall Street and among secondary mortgage lenders like Fannie Mae, housing markets in places like California’s Central Valley would stand to gain the most.’
I agree with Ben. Nothing will be changed without legislation.
The banks and lenders have had 5 years to notice these trends and to make corrections. However, they have not done so.
As long as the taxpayer ultimately foots the bill there will be no incentive to change.
~Misstrial
The Big Boyz in Real Estate have millions in election campaign IOU’s from their congressmen and senators. Why would these elected officials want to disturbe their cash flow. Ask Harry Reid about his friends in Real Estate.
It’s entirely up to the lenders on this one
You know the funny thing is if you look at a banks balance sheet it will be loaded with Mortgage Backed Securites. Banks really started buying MBS around five years ago. So subprime dumps and then banks buy back. It is just a circle, nothing has changed they just think they have spread the risk. Were all in for some pain.
On the eight day the GSEs were created.
I agree with Ben. The situation at hand creates a massive moral hazard for a backroom deal to let Fannie buy the paper, and later to create a newfangled version of the Resolution Trust Corporation to leave the bag in the hands of US taxpayers. Maybe that is why Fannie Mae’s stock price is so resilient, even though they have not filed financials in years?
Question for you all,
MLS says there are 1000 property’s for sale in a area.
News reports say 500 in this area sold last month?
Now comes articles that point out wife sold to husband, family sold to there LLC etc? These sales? are really not to “New” buyers.
Are they included in the above news reports of the 500 sold in this area?
If this is the case, these “sold” numbers are really f**k up. hence these Buyers are nothing more than money changing hands in the same group.
I’d think those sales would have to count. They list them in the local newspaper “real estate transactions” section… However, I’m certain they were never listed on the MLS.
texchick, there is noone more annoying than you.
Wow, I guess I’ll just have to find a painless way to end it all.
And how many “investment” houses in DFW do you “own”, sir?
txchick,
don’t know about the number of properties he owns, but it appears he owns a panty twister.
Bwwwwaaahhhhhaaaaaa
OT, sorry, Ben, belongs on Bits thread, but I wanted to get our favorite super smart real estate article writer right up! That Kendra…she’s a card…
http://promo.realestate.yahoo.com/
Hmph…a Yankee…”Prices, unlike the South, will rise again.”
She’s right in pointing out the importance of front-yard landscaping. She’s right in advising people to “understand what your financial resources are” — which would probably preclude 98% of non-owners from owning any house at all.
” In the long term, real estate is always the best investment around.” Kendra
Funny, you’d probably risk losing your broker’s license if you said this about any financial instrument. But, since its real estate, you can say anything you want. I have a feeling this should be something that should change, come the congressional inquisitions, uh “hearings”, on “What caused the housing bubble?”.
come the congressional inquisitions!! Congress really showed those Oil Company presidents how tough tey were!! Nothing is going to happen to fraud in real estate. Absolutely nothing.
Ha! Here’s a good one
http://www.latimes.com/classified/realestate/news/la-re-psyched5nov05,0,5779053.story?coll=la-home-realestate
Peer pruessure is one thing, foreclosure is another.
The level of fraud we are seeing today would not have been possible without the system that is in place today, where lenders are packaging up the loans and selling them into the CMBS market.
The shoddy underwriting (bordering on felonious) practices that have developed as a result of the CMBS markets was also the fuel for the inflation of the housing bubble. As that ready source of money finds out the returns that they were buying into is far less than expected (less than they could have received by investing in treasuries), due to massive losses from defaults, foreclosures and fraud, the money will become more expensive and less readily available. Then the money spigot shuts off and this falling house of cards will pick up steam……
“less than they could have received by investing in Treasuries”
– especially FOREIGN Treasuries
“money spigot shuts off and this falling house of cards picks up steam” — can actually turn this into a consistent image if the money spigot was hot water and the cards fall due to a sudden absence of steam LOL
Think about this ….A crook inflates a appraisal in say 2004 and its recorded as a comp . The neighbor sees the sale and he thinks his house must be worth that so he puts his house on the market for that amount and a FB fool buys it . So now we have a crook that established the trend and values in a neighborhood .Than it becomes a mania with everybody going up higher than the last sale .
Or a stupid speculator comes in a buys a property in another state because it looks cheap to him . The neighbor see that and he increases his list price and everybody follows suite .
That’s why a market comp isn’t necessary a indication of a stable value or a correct value . In past cycles lenders/appraisers would of balked at property going up to much in one year ,but I have see lenders give 25% more in one month from the last comp .
Sorry ,I made alot of spelling errors … 2 horses went down in the last race at the Breeders cup and one died who was the favorite .The jockey who is suppose to ride the favorite in the last race with the biggest money purse was one of the jockeys that went down ,but he said he is going to make the run . God what drama going on at the race tract . I feel bad about the beautiful horse that died .
Sorry I’m off topic .
Damn, this thread is quite upsetting. It’s appropriate here as a metaphor. I grew up in a country that was very beautiful.
I am in Los Angeles and see the handwritten yellow signs everywhere advertising for variations on the “Seeking Real Estate Apprentice” theme.
Does anyone have information on this scam? I am assuming that they would use the desperate “Apprentice’s” SS# to buy a home at an inflated price and give them some cash in exchange for trashing their credit when the home eventually goes into forclosure. The facilitators could also make the payments for a few months then repeat the process with a new “Apprentice” on the same property. In that case only the last “Apprentice” left holding the bag would have their credit trashed.
Does anyone have any info? If this is the scam behind these signs then it is equivalent to ubiquitous signs advertising illegal drugs for sale, or call this number to buy stolen cars… unbelievable!
You got it right that the intent is to use the “Apprentice’s “identity to buy a inflated piece of real estate that the seller and other people are in on .
Some of the cases are just to get a dumb person/borrower to take a property off someones hands and sometimes its a attempt to find a borrower for a POS that investors are having a hard time selling perhaps . The point is the apprentice is the “mark” ,and they will end up being a FB any way you look at it ,destroyed credit etc, maybe their identity stolen for a bunch of fraud deals . Look at what happened to that church group when one of these crooks stole all those peoples identities and the church people thought it was a harmless investment deal in which they had limited liability .
Really , think about it , why would a investor need a apprentice?
Doesn’t Donald Trump have several apprentices?
One of the easiest ways to track re fraud is just doing online title searches (in counties where its allowed or accessible) and seeing who is going into foreclosure….all the players are there including the buyer who walked with cash at the close of escrow, the buyer who bought a home for an inflated purchase price (and got cash), the sellers who carry back seconds on inflated purchase prices and don’t even bother to foreclose (they know the first won’t even get covered at the courthouse sale) and the same lenders who show up over and over again.