Winning Mortgage Fraud Convictions: The Number of Convictions in Mortgage Fraud Cases Is Exceedingly Sow, Particularly When Consumers Are the Defendants. What Can the Industry Do to Turn Those Numbers Around?

By Walzak, Becky | Mortgage Banking, March 2012 | Go to article overview

Winning Mortgage Fraud Convictions: The Number of Convictions in Mortgage Fraud Cases Is Exceedingly Sow, Particularly When Consumers Are the Defendants. What Can the Industry Do to Turn Those Numbers Around?


Walzak, Becky, Mortgage Banking


There's no doubt there have been some bad mortgages made over the past decade, and many have involved fraud. A review of the numerous news headlines and articles covering fraudulent loans over the past 10 years shows that many point the finger at the mortgage lending industry. Very few news accounts highlight the fact that some of these nefarious plots and money-grabbing scams were carried out by consumers. * Who was behind the fraud? Mortgage brokers, lenders, banks, rating agencies, due-diligence providers, title companies, appraisers and Wall Street investment bankers. At least that's what most of the articles and news broadcasts would lead you to believe.

[ILLUSTRATION OMITTED]

Consumers commit mortgage fraud, too

Consumers were not involved in any way, according to these news reports; they were just the victims.

Apparently brokers filled out the applications for them and lied about their income, their assets and removed all the credit problems they hack And then to hide all these misstatements, they forced consumers to sign these documents blindfolded so they couldn't see what they were signing.

I'm not serious, of course. But the reality is that most oi the information made public about mortgage fraud--including who is arrested, found guilty and sentenced to jail--focuses on those associated with making a mortgage loan.

Very rarely do we read about fraud committed by consumers.

Why do you suppose that the number of consumers convicted of mortgage fraud is so very small?

Although there have been myriad television shows that portray desperate consumers robbing banks to get money to pay bills--because only the banks got "bail-out money"--there's been very little news coverage that highlights the problems that consumers themselves created. Nor has much been done to punish those whose excessive greed was a driver in the mortgage mess.

A study released by the Federal Reserve Bank of New York late last year found that speculative investors in real estate played a large part in the quick run-up and subsequent devaluation of housing prices. The study concluded that; in fact, speculators--or in other words, consumers--are responsible for more of the financial crisis than previously thought. While the New York Fed may think that, the public sure doesn't.

Why is it that the public seems unaware that consumers, too, share some blame for the mortgage mess we re in?

Law enforcement recognizes that many consumers were aware of what was going on and actually participated in the fraud. In fact, because of the effort that has been put into educating the Federal Bureau of Investigation (FBI) and other law-enforcement agencies, law enforcement has been able to identify many of the larger scams that occurred in the states that were hit the hardest.

However, once the arrest is made, it is up to the prosecution to get criminals convicted. And that's where I think the system breaks down.

If you consider the number of consumers tried for mortgage fraud and then look at the percentage convicted, it's clear there's a disconnect somewhere.

Why aren't there more convictions?

There aren't any widely available statistics on the percentage of convictions won in mortgage fraud trials. But other veterans of mortgage fraud trials see the same problems that I do.

There are a number of factors working against convictions in mortgage fraud trials, according to Ann Fulmer; vice president of industry relations with Interthinx, a risk-mitigation company headquartered in Agoura Hills, California. The slow pace of the investigations in trials, as well as the number of criminal cases that get filed in comparison with the actual incidence of mort gage frauds that have been perpetrated, tend to limit the number of convictions.

"Typically there are relatively light sentences handed down, as judges often don't consider the damages to the larger neighborhood and economy," notes Fulmer, a former prosecutor. …

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