I'm admittedly concerned about the real estate and mortgage fraud outlook for 2007 after considering the developments of the past year. Real estate and mortgage fraud is a complicated issue presenting a spectrum of societal challenges in the form of costs and consequences. Industry leaders express grave concern without revealing a concise and cohesive strategy to combat the epidemic. The U.S. Justice Department continues a misguided agenda of prosecuting mostly "notorious" fraudsters in metropolitan areas. State and local authorities often recognize the existence of a problem, but lack the resources to confront this sophisticated form of theft. As a matter of public policy, the causation factors that result in a breakdown of protocol in real estate transactions are either misunderstood or conveniently ignored.
We're told that real estate and mortgage fraud is properly managed by "tagging" individuals and properties as "high risk factors" based on information contained in data bases. Transparency is the "sound-byte" of the day and ostensibly a contributing factor to loan quality enhancement and loss mitigation. Sadly, technology is the only publicly disclosed solution proposed by lenders and title insurers at this time. The two industries that stand to lose the most have inexplicably shown little initiative in solving (studying) the problem. A dependence on technology has blinded them from a simple truth: the consequences of real estate fraud are a human reality, not a "virtual reality." Why would the "cybernetic" approach to fraud prevention work in 2007 if it didn't work in 2006?
The unrealistic expectations placed on automation by the real estate industry begin at the advent of every transaction. Homes are listed and sold locally, yet lenders and title companies now embrace a business model that espouses the virtues of mass production. The variables leading to homeownership aren't "linear" and "quantifiable" as suggested by the "factory mentality" that is loan and title processing in today's world. Escalating real estate and mortgage fraud statistics correlate directly to the application of "new" technology. The real estate industry has lost site of the fact that advances in technology are meant only for the advancement of the human condition. The incidence of real estate fraud was statistically insignificant in the past when lending and title services were "personalized" and "community based."
Far too often, fraudsters target communities and individuals that can least afford the abuse. A boarded up home is visible evidence of real estate fraud; despair is the human cost that's publicized so rarely. Consumers are sensationalized as villains by professional associations and the media when, in reality, all schemes require the orchestrated efforts and coaching of industry insiders. Legitimate studies conclude that predatory lending practices are biased towards minority and lower income groups. Deceitful loan brokers (realtors) enlist the cooperation of title agents and appraisers to exploit unsophisticated or otherwise vulnerable borrowers. A study released this month by the Consumer Federation of America indicates that woman with above average income and credit scores were more likely to obtain sub-prime financing than men with similar profiles. Households headed by woman, particularly women of color, are unable to realize financial security through the traditional path of homeownership. The "yield spread premium", an advanced banking concept designed to bundle disparate loans in commodity markets, is often used abusively by mortgage brokers to "over-sell" unsustainable payments to trusting customers. The deceitful mortgage brokers are then paid undisclosed fees by wholesale lenders. I strongly oppose the use of the "yield spread premium" in retail markets without disclosure requirements much stricter than those currently employed.
In some ways, 2006 marked the beginning of a period of accountability for industry insiders who commit or facilitate real estate and mortgage fraud. A dramatic spike in default rates occasioned by rising interest rates has "unearthed" a generation of loans originated by internally falsified documentation and over inflated appraisals. It's now impossible for lenders to use "hyper-appreciated" REO values to understate actual losses caused by foreclosures. The crimes of the past decade are finally coming to light. The media suspects that the real estate industry has had its collective hand in the ill-gotten profits of fraud. Future articles appearing in respected publications will provide the basis for criminal investigations, regulatory inquiries and class action litigation.
Reform will take a very long time and will offer no relief for those already victimized by fraudsters. In his book, "An Inconvenient Truth", Al Gore wrote "We have everything we need to begin solving the crises, with the possible exception of the will to act". An informed and concerned community of consumers is the fraudster's worst enemy! A community based approach to fraud prevention presents opportunities for consumers to avoid exploitation; especially when initiated by industry insiders. This site is a perfect example of a learning opportunity for consumers and industry insiders alike. I predict that fraud statistics in 2007 will escalate to startling heights. For reasons I can't comprehend, legislators and industry leaders will continue to approach the problem with "stone hearts" and "closed minds." Real estate fraud is a human issue that can only be solved through a shift in public policy and public perspective. Once society recognizes that human suffering is the primary cost associated with fraudulent activity in housing markets, the financial consequences will self-correct in time. When will we learn?
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