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Mortgage fraud increases in 2008

Jay Hammond — Mon, 09 Feb 2009 15:47:49 +0000

The military in Iraq wasn’t the only thing surging in 2008. Mortgage fraud also reached a new high last year, according to the FraudBlogger Index. Federal investigators have identified an increase in frauds and schemes in the real estate business as well.

Mortgage fraud activity that might have otherwise gone undetected was uncovered as falling home prices and rising defaults pushed these crimes to the surface,” said MortgageDaily.com Publisher Sam Garcia. “Although Fraud is being uncovered at an increasing pace, the actual level of fraud on more recent originations has likely tumbled as production has dwindled and lenders have tightened guidelines.”

FraudBlogger reports that more than $5 billion in mortgage fraud cases were tracked during 2008. That’s up from $4 billion in 2007. Quarterly activity more than doubled in the fourth quarter over the previous quarter and was nearly 300 percent higher than the fourth quarter in 2007.

The ten states experiencing the most mortgage fraud in the final quarter of 2008 were:

California with $1,095,840,000
New York with $374,334,000
Florida with $344,634,286
Minnesota with $208,300,000
Nevada with $101,200,000
Virginia with $77,213,822
Texas with $70,000,000
Colorado with $50,800,000
Ohio with $41,469,500
Pennsylvania with $40,800,000

California jumped to the to the top of the list followed by New York, a newcomer to the top ten ranking. Much of California’s increase was tied around 11,000 mortgage fraud investigations reported by the U.S. Attorney in San Francisco.

In addition, special agents with the Internal Revenue Service (IRS) Criminal Investigation division investigate mortgage fraud. These agents an uniquely equipped to investigate such fraud and similar illegal activities because they are skilled financial investigators whose mission is to “follow the money” and collect evidence to prove applicable tax or money laundering violations. Once the investigation is complete, the IRS agents forward their investigation to the Department of Justice for criminal prosecution, if such a prosecution is warranted. The IRS can also take civil action if a criminal case is not warranted.

According to the IRS, 349 investigations were initiated during 2008, a slight increase over the 2007 level of 337. Recommended prosecutions increased more substantially to 263 in 2008 up from 217 the previous year. Indictments and informations experienced the greatest increase rising by more than 100 to 255 in 2008. There were 136 convictions reported in 2008 compared to 130 the year before. The number of sentences pronounced and the overall incarceration rate both declined in 2008 to 104 sentences and an incarceration rate of 82.7 percent. The number of average months served grew to 38 from 35, however that is still lower than the 47 months handed out in 2006.

Some of the common types of real estate fraud schemes identified by the IRS are:

Property Flipping – a buyer pays a low price for a property then resells it quickly for a much higher price. While this may be legal, it becomes a criminal act when it involves false statements to the lender.
Two Sets of Settlement Statements – One settlement statement is prepared and provided to the seller accurately reflecting the selling price of the property. A second, fraudulent, statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators.
Fraudulent Qualifications – Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history of credit record.

Several mortgage fraud prosecutions have been widely publicized already in 2009. The most recent is the announcement last week by federal prosecutors and reported by the Associated Press (AP) that Christopher J. Warren of Sacramento was being charged in a mortgage fraud and investment scheme spanning Arizona, California, Florida, Illinois and at least one other state and totaling an estimated $100 million. Nor is it just new prosecutions that are being seen. The New York Law Journal reports that attorney Alexander M. Kaplan or Brooklyn, NY was recently convicted on 18 counts including conspiracy and bank, mail and wire fraud related to a subprime mortgage scam. He is scheduled to be sentence May 1, 2009. In Ohio, four people were convicted and sentenced last week in what the Columbus Post Dispatch calls “the largest mortgage fraud case ever prosecuted in central Ohio.”

Along with mortgage fraud, foreclosure fraud is also showing signs of growth as the economy slows and more homeowners find themselves struggling.

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Home Values Lost $1.4 Trillion during 4Q 2008

Jay Hammond — Wed, 04 Feb 2009 02:02:17 +0000

Americans lost more, in terms of home values, during the final quarter of 2008 than in all of 2007. According to Zillow Real Estate Markets Report, home values fell 11.6 percent or $1.4 trillion during the eighth consecutive quarter of declines.

The declines mean that U.S. homeowners lost a cumulative $3.3 trillion in home values during 2008. During all of 2007, home values lost only $1.7 trillion. Since the peak of the housing market in 2006, home values have declined by $6.1 trillion.

As home values have declined, more American homeowners have found themselves underwater on their mortgages. One out of every six homeowners had negative equity by the end of 2008, up from the one in seven in the third quarter. Further, foreclosures made up nearly one in five or 19.9 percent of all transactions in 2008.

A witch’s brew of economic insecurity, foreclosure and tightened lending standards are helping to keep hard-hit markets down and to widen the scope of markets showing declines in home values,” said Dr. Stan Humphries, Zillow vice president of data and analytics. “As more markets turn down and markets that were already down go deeper, the pace at which value is being erased from the U.S. housing stock is rapidly increasing, with more value wiped out in the fourth quarter of 2008 than was eliminated in all of 2007. The fourth quarter is the first in which we were able to see the effects of the mounting economic insecurity that picked up steam in the fall of last year. People without jobs, of fearing jobs loss, typically don’t buy homes, no matter how low prices or mortgage rates might be. Public policy, in terms of both job creation and efforts to stem the tide of foreclosures, will have a large influence on when some of these markets find bottom.”

Of the 161 metropolitan statistical areas (MSA) surveyed as part of the Zillow Real Estate Market Reports, 21 are not feeling the pinch of declining home values. Home values in the Pittsburgh MSA were flat (-0.1 percent) in 2008. Home values in the Fayetteville, NC MSA actually increased by 6.9 percent, followed closely by the 6.2 percent increase in Yakima, WA MSA. Other areas in New York State, the Midwest and the South also experienced steady or increasing home values.

Unfortunately, 10.9 percent of all real estate transactions across the country in 2008 were short sales. The Lincoln, NE MSA led the country in the rate of short sales, with 14.1 percent of all transactions. Short sales also accounted for more than 11 percent of all transactions in California’s San Jose, Santa Rosa and Santa Cruz MSAs. The Central Valley in California continued to lead the nation in foreclosures, as well. More than half of all sales in the Madera, Merced and Stockton MSAs were foreclosures compared to the 3.9 percent recorded in the New York City MSA and Grand Junction, CO MSA, which were the nation’s lowest.

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Growth Industry 2009: Criminal and Constitutional Law

phillenbrand — Wed, 24 Dec 2008 17:22:15 +0000

Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

It?s going to be all lawsuits all the time, as filings and indictments come fast and furious after January 20. In fact, a number are in the works already.

From the perspective of Wall St. crime, it will be interesting to see what Elliot Spitzer and Rudy Giuliani do. Keeping his hand in by writing for Slate, Spitzer?s wounded and has nothing to lose. Giuliani has got to smell blood and a loyal-to-the-point-of-absurdity Republican he is not.

Let?s start with . . .

Criminal Law

There?s a big one pending of the type that made the reputations of Spitzer and Giuliani in their US Attorney days?Insider Trading! As you remember, Giuliani?s high-profile conviction was Ivan Boesky and Spitzer?s was Martha Stewart.

Conveniently domiciled in their former district, Robert Rubin?former co-Chairman of Goldman Sachs, former Treasury Secretary under Clinton and on the board of, counsel to and briefly Chairman of Citigroup? was on the short list to be Treasury Secretary again. What happened?

When you want the low down, the New York Post is the paper of record. On December 4 it reported: “A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that’s now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.? However?and here?s the indictable offense?before Citi’s stock collapsed, Rubin and other top insiders cashed out of more than $150 million in “suspicious stock sales” according to the lawsuit filed on behalf of investors. They never know when to stop, do they.

An Astounding Conflict of Interest

The disposition of this case is going to set quite a precedent. Apparently, stealing investors? money is a crime.

Bernard Madoff, former head of the NASDAQ, surrendered to the FBI on December 11, after having been turned in by his sons Mark and Andrew for running a several-decades-long Ponzi scheme. Investors have been wiped out to the tune of $50 billion. What makes this case interesting is not only Madoff?s insider status, but that Mary Schapiro, nominee for SEC Chairman, has recently announced the appointment of Mark Madoff to a prominent role with the security-industry oversight agency. And there?s more.

According to the FBI, the SEC and other regulatory bodies received several written complaints about Madoff over the years, which were never pursued. It now has been learned that ?Ms Schapiro, currently chief executive of the Financial Industry Regulatory Authority (Finra), employed (son) Mark Madoff to serve on the board of the National Adjudicatory Council ? the division that reviews disciplinary decisions made by Finra,? according to the UK TimesOnline on December 18. Madoff père is currently confined to his Park Avenue apartment awaiting trial.

Strange Treatment of Small Fry

This next case is small in terms of money?what?s a few hundred mil these days?but has an interesting twist. In another action by federal prosecutors of the Southern District of New York, they have arrested attorney Marc Dreir for stealing at least $380 million in ?a brazen swindle of some of New York?s savviest investors by one of New York?s more accomplished lawyers,? as reported in the New York Times on December 14. Another $35 million is missing from escrow accounts at his 250-member law firm.

Why this case stands out is that the accused is actually in jail being held without bail. Can you believe it. He must be really dangerous. Or he lives in New Jersey.

Constitutional Law

This should be getting more ink, imo.

On December 10, the WSJ reported that the Fed ?is considering issuing its own debt for the first time . . . which . . . would provide the central bank with more flexibility to tackle the financial crisis.?

Ordinarily, when short of cash the Fed turns to the Treasury. The Treasury can no longer fund the Fed because of its own massive borrowings set for 2009 and debt limits imposed by congress.

Issuing debt is not in the Fed?s charter. According to the Constitution as it is currently written, only congress through the Treasury has the power to borrow against the credit of the United States. What?s proposed by the Fed would give it extra-legal authority to exceed the debt ceiling set by congress. It also would usurp powers of congress and the Treasury and transfer them to the Fed, which is a private entity owned by member banks.

Paul Volker would be turning in his grave if he were dead.

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Introducing Blown Mortgage News

Morgan — Thu, 18 Sep 2008 04:00:11 +0000

Gang, I’m happy to announce Blown Mortgage News, a user-generated link blog of the latest mortgage and real estate news and information. You can access the new news site at http://news.blownmortgage.com.

The Premise

I can’t cover all the news these days, but want you to know about it.
You have access to great sources of information that can make us all smarter.
You have stuff you want me to cover, now you have a say.

How it Works

Sign up for a free account from Reddit, the social news site.
Submit your links.
Vote links and stories up and down
I review the top vote-getters and write my take on them

What does the future hold?

I’m working on assembling a podcast crew that want to discuss the top stories each week which will then be broadcast here on BlownMortgage.com

Sweetening the Pot

In order to get folks excited I’m going to raffle off a $50 Amazon gift card once the first 50 users are signed up and have submitted a link to the new Blown Mortgage News.

What are you waiting for?

Join now!

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Where’s AIG?

Morgan — Wed, 17 Sep 2008 23:51:00 +0000

From Barry at The Big Picture:

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AP and Bloggers – going about it all wrong

Morgan — Wed, 18 Jun 2008 04:11:46 +0000

How many organizations and individuals are going to step in “it” regarding bloggers? We’re a new part of the news ecosystem and while some blogs may go and some blogs will stay; the current mainstream media needs to adapt and grow with the changing realities.

The AP’s demand that a blogger pull all AP excerpts from blog posts just goes to show how wide the gap of understanding is in the mainstream media about this new news ecosystem.

Off for a few days

Morgan — Mon, 16 Jun 2008 15:27:32 +0000

I’m off in Atlanta for a few days on business so posting will be light. Enjoy Housing Wire and Calculated Risk in the meantime.

Cheers,
Morgan

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Follow what I like on the Web

Morgan — Wed, 07 May 2008 06:48:56 +0000

There is a lot of great stuff out there on the Web that interests me that if not for the lack of time I’d blog about here. If you’re looking for more mortgage news from the world around us simply click on the Google Reader icon to get my shared items feed from my Google Reader.

I track more than 150+ RSS feeds from news and opinion sites and blogs and share a great deal of information that I just can’t get to on Blown Mortgage. So add my shared items to your RSS reader and get a full-dose of mortgage news from Blown Mortgage each and every day!

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Be a Hero – Send Tips to Blown Mortgage

Morgan — Fri, 18 Apr 2008 01:48:59 +0000

Hi Gang,

Between us all I imagine we’ve got the entire wholesale and retail lending universe covered; but alas, I alone do not. If you have guideline changes, announcements from banks, or other interesting tidbits of information send them my way.

I’ve created a new email address for you: tips@blownmortgage.com

When banks change guidelines, eliminate or add products or simply send out stuff that makes you scratch your head send them to us.

100% privacy guarantee – In over a year of blogging I have always kept the privacy of my readers in the highest confidence and will continue to do so. If you’d rather get some publicity I’m happy to oblige as well. Just let me know.

I’ve got my google alerts, marketwatch alerts, feed reader, my old email address that gets rate sheets and product changes, and favorite tipsters, but I’m looking to know more and you’re the perfect people to help. So send whatever you’ve got to tips@blownmortgage.com and help keep the knowledge flowing.

- Morgan

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Headed On Vacation, Need Some Help

Morgan — Mon, 31 Mar 2008 05:51:26 +0000

Hi Gang,

On Saturday I’m headed to Mexico via a nice cruise from San Diego down to Mazatlan, Cabo, et al. I’ll be gone about 10 days. I’m trying to load up some posts in the meantime, but I would love some guest posts while I’m gone.

I’ll open it up to any Blown Mortgage reader. Hit me up with an email with your post and I’ll queue it up while I’m gone. Put your name, business and a link at the bottom so you get some props for your work.

Last year when I went on vacation I had the good fortune of having some amazing guest posts and I’m hoping that luck finds me again for this brief respite.

All submissions considered, but I of course retain final editorial control. Thanks for caring and reading. You guys rock.

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