|
Special Reports
Mortgage Fraud: Protecting
The Investment
Finding Fraud in Loans Before Performance Suffers
Investors like Freddie Mac are 'data mining.'
By Lew Sichelman
WASHINGTON -- The mortgage business didn't used to give a hoot about loans received
under fraudulent circumstances as long as they were performing as expected.
But that's no longer the case, according to Jenny Brawley, a senior fraud investigator
at Freddie Mac.
Now, investors like Freddie Mac are "data mining" mortgages, "looking
for patterns of fraud" in an attempt to "get to them before they go delinquent."
And, perhaps better yet, Ms. Brawley said at the National Association of Mortgage
Brokers' legislative and regulatory conference here, prosecutors are no longer waiting for losses to occur before
going after swindlers who cheat lenders and investors out of billions of dollars annually.
But even though crime busters are becoming involved earlier in the game, the incidences
of fraud remain on the upswing, according to William Brewster, manager of Fannie Mae's big underwriting center
in Dallas.
While much has been made of the growth in identification theft - complaints about
ID theft to the Federal Trade Commission are up threefold - mortgage fraud has increased fivefold in the last decade,
Mr. Brewster told the conference.
"We're seeing a steady increase in the volume of loans with misrepresentation,"
he said.
In many of the cases investigated by Freddie Mac, which has a staff of six investigators,
the miscreant is a lone individual, according to Ms. Brawley.
Even when collusion is involved - and even when borrowers unwittingly sign on
to the scheme - the misdeed is "orchestrated" by the seller, the fraud expert told the attendees at the
NAMB conference.
"We call it 'one-stop-shopping' and we see it a lot," she said. "It
doesn't take much to dig down a couple of layers to discover it's one person controlling the transaction. Typically,
it's the seller who's opened his own mortgage company and title company."
Even when the conspiracy involves loan brokers, appraisers and others in the lending
process, she emphasized, it's usually one person - perhaps a builder or remodeler - who runs the show, according
to the Freddie Mac executive.
Borrowers generally are "legitimate individuals" who want to buy or
invest in a home and are "sucked into the scheme," she added. Even when "straw buyers" are
part of the equation, they are often "well-meaning relatives" who have been told that everything is on
the up-and-up.
Fannie Mae's Mr. Brewster said that while "small pockets of sophisticated
perpetrators" are at work throughout the country, his company has noticed a higher rate of fraud in cities
in the Southeast and Midwest - places like Atlanta, Memphis, Detroit, Chicago, Indianapolis and Charlotte, N.C.
- where a large amount of rehabilitation is taking place. Typically, the offenses the company discovers involve
"property flips" in older, deteriorated neighborhoods where it is not unusual to see a renovated 50-year-old
house standing beside another 50-year-old property that has not been remodeled.
While there is nothing wrong per se with flipping, or buying a rundown house,
fixing it up and reselling it over the course of a few months, said Mr. Brewster, whose office now reviews loans
on a random basis nationwide as a matter of course, a lot of bad guys do something illegal within an otherwise
legal framework.
|
