Rachel Dollar is a California attorney and recognized expert on fraud in the mortgage lending industry. She is the editor of the public-service industry Web site Mortgage Fraud Blog (www.mortgagefraudblog.com), which is committed to raising awareness of the growing problems associated with mortgage fraud against lenders.
Dollar is a partner in the law firm Lanahan & Reilley LLP, Santa Rosa, California, where she chairs the firm's Mortgage Banking Group. She handles mortgage fraud litigation for lenders on a nationwide basis. She has supervised successful complex mortgage fraud and Racketeer Influenced and Corrupt Organizations Act (RICO) litigation in the federal courts, as well as complex litigation involving secondary-market investors, mortgage insurers, loan servicers and other financial services companies. Dollar has also been involved in the discovery, investigation, resolution and litigation of large-scale fraud schemes nationwide.
A frequent industry speaker, Dollar also teaches in-house seminars on mortgage fraud issues to lending professionals. She frequently consults with licensing and local, state and national criminal agencies across the country on mortgage fraud matters, and is sought out regularly by the press to comment on mortgage fraud issues and cases.
Mortgage Banking recently interviewed Dollar about the current state of mortgage fraud against lenders.
Q: Let's start by giving a working definition of "mortgage fraud" and explain its impact on the mortgage lending industry--both in terms of dollars and cents, and the way it has changed the way business is done.
A: The definition of mortgage fraud is any misrepresentation made in the loan process in order to influence a lender's decision regarding credit. That causes the lender to extend credit beyond that which they would have otherwise have extended--which could be [in the form of] a higher loan amount or credit on different terms, including lower interest rates.
It's important to include that within the definition of mortgage fraud because it brings in the whole sphere of fraud for property. There are really two different types of mortgage fraud that we're concerned with: one of fraud for profit, which is the larger scheme. That results in really high dollar-amount losses and other ones that the statistics mostly track; versus fraud for property or fraud for housing, which usually only involve one loan to two loans at a time, lower dollar losses and a situation where a borrower is misrepresenting certain information in order to get into a larger house or a lower interest-rate product.
The difference is that in fraud for housing, the borrower intends to make the mortgage payments--while in fraud for profit, the ultimate intent of the parties taking out the loans is to default on the loans and allow them to go into foreclosure.
The impact on the mortgage industry has really changed over the years, as mortgage fraud has become more of a significant issue. Initially, a lot of the fraud was viewed as a cost of doing business. But as fraud has impacted lenders at higher dollar amounts and has involved actual damage to consumers, lenders have taken a different look at it.
There are a lot of lenders now that are using fraud as one of their underwriting criteria. They are looking at fraud issues upfront in the loan process, and [they are] having that be a real focus of underwriting.
As far as dollars go, FBI [Federal Bureau of Investigation] statistics show that there was approximately $1 billion worth of mortgage fraud in 2005. That is estimated to be about one-third of the actual problem, so the losses are actually estimated between $1 billion and $3 billion--and that differential rests in the fact that the FBI measures fraud statistics by suspicious activity reports [SARs], and only one-third of lenders are required to file suspicious activity reports. …