By Michael S. Richardson - Author & Forensic Mortgage Fraud Expert
michaelr@preventmortgagefraud.com
Once a white-collar criminal gets away with fraud, the process quickly becomes addictive. Success breeds more success, and before long such crafters of fraudulent mortgage loans clearly begin feeling that not only are they above the law but in fact, they are not doing anything wrong in the first place. Fraud can happen to anyone: loan officers, processors, underwriters, buyers, sellers, investors, owners, and management of mortgage companies. It can happen anywhere: big cities, small towns, storied and well-recognized firms, smaller mom, and pop businesses who just want to do the right thing for a would be homeowner or just have the need to make money.
The Treasury Department provided a plan to collaborate with private funds to buy up to $1 trillion of "toxic assets." It is very unclear if these purchases will include foreclosed properties. The unlisted and unsold foreclosed homes are likely to further delay the recovery and destabilize lenders' financials further or increase the dollars needed to include the foreclosed properties.
RealtyTrac states lenders may be holding up to 700,000 residential properties that are not on listed for sale yet, foreclosure properties. This supply of homes are not counted as part of the housing inventory, with 3.8 million existing homes for sale in February which is almost a year's supply of homes for sale. The foreclosure rates have remained somewhat the same recently although it could be due to government moratoriums or voluntary lender halts on foreclosures, however, eventually a large percentage of those homes will end up being foreclosed on. With that supply of existing home for sale homes and the foreclosed properties, values are going to fall further. When the foreclosed properties enter the market, the appraisals will negatively reflect values.
Some of the positive news in February was that existing-home sales rose 5.1% and housing starts were up 22.2% from record lows. One of the issues surfacing is the so called specialists who are attempting to work a modification for borrowers are growing like springtime weeds most without the experience of needed to work the new programs or even understand the mortgage industry, thus fewer mortgages are actually being modified. Then there are the many new schemes these weeds (fraudsters) have developed preying on the homeowner once again.
When the economy eventually picks up, many of these issues will not be as challenging to the lenders, and this leads to the concern of mortgage fraud. Mortgage Fraud continued to climb up by 26% in 2008, another record. The Suspicious Activity Reports (SARS) climbed by 44%, mortgage fraud which is the third most reported activity to Financial Crimes Enforcement Network (FinCEN) , Almost 900 filing institutions submitted mortgage loan fraud SARs and according to FinCEN, fewer than 200 institutions submitted 98% (60,800) of the total. The top 10 filing institutions submitted 57% (35,400) of these filings, compared to 30% for the top 10 filing institutions of all SARs.
With fewer loan originations in the last year or so, some professionals reviewing the data may believe the increases are due to this very slow economy and shows signs of more desperation, causing more people than ever before to try to commit mortgage fraud. While that may have a some merit, mortgage fraud statistics point, clearly ,point to nothing short of an epidemic for over 5 years now or longer.
Yet, really, what do we know about fraud? In fact, it is not what we know about fraud that is dangerous; it is what we do not know. What is worse is the staggering amount of opportunity with which the American real estate industry provides those who commit fraud.
Clearly, the amount of money to be made in real estate - both residential and commercial - lends itself to abuse. New employees mean new training, and lack of new training leads to old mistakes. The growth of fraud is insidious; it creeps up on us, taking us by surprise until, before we know it, someone we work with, someone we work for, or even those who work for us, is committing fraud.
It is so easy, so slick, and until now so largely un-enforced. A number fudged there, a figure left out here, a bogus appraisal, a friend of a friend who plays it fast and loose with a client's verification of rent, a fabricated credit report, and soon enough a mortgage loan is fraudulent.
Willful blindness is a legal term that skirts the boundary between neglect and culpability, and I wouldn't be able to talk about it if it didn't exist. The concept of willful blindness, which at its heart expresses the contention that the industry exhibited "willful blindness" to obvious fraud through ignoring it for so long, in so many cases, at the hands of so many fraudsters. To be honest, fraud does not exist in a vacuum. It arises from opportunity, and more often than not that opportunity exists because we are too busy minding the high-rise to success that we're working so hard to build to check on the rats steadily chewing away at our foundations.
My personal experiences as a victim of mortgage fraud and the last five years attempting to prevent mortgage fraud have given me a doctoral degree from the "School of Hard Knocks". Much like you, I "never thought it could happen to me."
But it did.
It can.
In addition, if the statistics prove out, it probably will or has affected you...
Until we stop fraud on a loan-by-loan basis, establishing significant penalties and sobering preventative measures, fraud will continue to reach epidemic proportions in our industry. We must be vigilant against fraud, recognizing its signs and taking proactive, definite, and realistic steps to not only prevent it but also punish it. Let us be honest: we cannot always prevent fraud through proactive measures. While we are busy running our companies or processing loans, fraudsters are spending all their time - and I do mean all, as in every waking second - thinking of new, inventive, and difficult to detect ways to do what they do. It is nearly impossible to keep up with such dedicated, aggressive, and workaholic criminals. If we could somehow stop all fraud tomorrow I believe that, like cockroaches, these "bad seeds" would quickly find some other way to earn their ill-gotten gains.
We cannot turn a blind eye to fraud anymore. Not only does this make us an unknowing accessory but also it is the very reason fraud remains so rampant. Those who would commit fraud know that few will report it if they are discovered and, even if they do, by then they will have moved on to avoid penalty. The only way to stop such a widespread, global problem is to look ourselves squarely in the mirror and promise to fight fraud wherever, and whenever, we can, one loan at a time.
Let us not just talk about this time, it is time to take action!
It starts with me.
It starts with you.
It starts with us...
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