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Friday, June 11, 2010

Report: FBI to "arrest hundreds of people" next week for Mortgage Fraud

by Calculated Risk on 6/11/2010 01:20:00 PM

From the Financial Times: FBI to target mortgage fraud

The FBI is preparing to arrest hundreds of people across the US as early as next week for offences including encouraging borrowers to falsify income on mortgage applications, misleading home owners about foreclosure rescue programmes, and inflating home appraisals ... The FBI is scheduled to release its 2009 mortgage report on June 17.
excerpt with permission
The FBI usually only arrests people engaged in fraud for profit and not fraud for housing - they typically don't arrest borrowers who misrepresented their income - they arrest mortgage brokers who encouraged people to falsify their income. Although the distinction was blurred during the bubble ...

Tanta wrote a great piece on this in 2007: Unwinding the Fraud for Bubbles
There is a tradition in the mortgage business of distinguishing between two major types of mortgage fraud, called “Fraud for Housing” and “Fraud for Profit.” The former is the borrower-initiated fraud—inflating income or assets, lying about employment, etc.—that is motivated by the borrower’s desire to get housing (not the same thing as “real estate”), by means of getting a loan he or she doesn’t actually qualify for. ...

Fraud for profit is simply someone trying to extract cash—not housing—out of the transaction somewhere. ...

The problem with this traditional distinction is that, recently, we seem to have an epidemic of predator meeting predator and forming an alliance: a borrower willing to commit fraud for housing meets up with a seller or lender willing to commit fraud for profit, and the thing gets jacked up to a whole new level of nastiness.
The FBI will probably be busy for years.

Here is another scam in Florida from Sally Kestin at the Sun Sentinel: Squatters take over S. Fla. homes in what police call latest fraud in housing crisis (ht Ray).