It's never a good sign when television's most popular crook targets your industry, but Home Box Office (HBO[R]) gangster Tony Soprano's real estate scams are just a case of art imitating life. In the real world, organized crime--including gangs and drug dealers--attracted by 2006's projected $2.46 trillion origination market (according to the Mortgage Bankers Association [MBA]), see mortgage fraud against lenders as a market ripe for expansion. [??] "Those numbers are targets for the bad guys," says Rhonda Heilig, supervisory special agent for the Federal Bureau of Investigation's (FBI's) financial institution fraud unit. [??] Georgia Attorney General Thurbert E. Baker agrees. "We're seeing dealers leave the drug trade for what they consider a safer alternative. The profit potential is at least as high, and they're less likely to get a bullet in the head.... The bottom line for many of you is that your businesses are being robbed," Baker warns. [??] Over the past decade in Chicago, gang leaders have purchased apartment buildings and obtained cash-out refinance loans that experience early payment default (EPD), all the while collecting Section 8 rents, the Chicago Tribune reported. In a series of articles, the paper explained how one reputed gang leader acquired the South Side building on the corner where he sold drugs and used it to support his operations, house members and launder drug profits. [??] In Atlanta last year, the scene was more suburban when property flippers let gun-toting drug dealers move into a property they targeted in a neighborhood where homes sold for as much as $1 million. [??] Fraud is also moving directly into mortgage shops. "Fraud-for-profit rings recruit insiders, and send them to your agencies and to come work for you, and into call centers so they can steal identities," Heilig explains.
At the same time law-enforcement officials are broadcasting Be-On-the-Lookouts for new entrants into the mortgage fraud field, they're including two unpleasant follow-up warnings. First, mortgage fraud against lenders may be growing, but it's pretty far down the FBI's to-do list (it's priority No. 7, to be exact). Second, lending money without checking property value and borrower income is like leaving your wallet open on a towel at the beach while you go swimming--in either case, you're not going to get a lot of sympathy when you're robbed.
If your firm doesn't verify income, the FBI may not deem you a victim. "We're starting to look more and more at willful blindness among financial institutions," says Stephanie Woods, assistant general counsel to the FBI's legal forfeiture unit. "We're starting to see some flagrant oversight in some of these fraud cases. No one cared to check [income] before they gave out a lump-sum payment."
Unless the mortgage banking industry expends more energy to self-police, fraud will increase, predicts Barry McLaughlin, special agent in charge of the Midwest region of the Office of Inspector General (OIG) at the Department of Housing and Urban Development (HUD). "It's when your competitors cross the line between salesmanship and fraud that we'd like to get the call," McLaughlin explains. "The first step in cleaning up the industry is for honest lenders to step up and report."
Despite those sobering messages, lenders can take some steps to make their business unattractive to crooks. If those tactics don't work, there are ways to make your fraud cases easier to prosecute. And it may be easier to go after fraudsters in the future, thanks to increased suspicious-activity reporting as well as legislative solutions that are on the horizon. MBA, meanwhile, continues to lobby legislators to fund additional investigators and prosecutors to attack fraud against lenders at the state and federal levels.
Only the worst
"Mortgage fraud is the fastest-growing white-collar crime affecting the United States today," says Karen Spangenberg, chief of the financial crimes section of the FBI's criminal investigative division. …