Who’s involved in committing the most fraud in the mortgage industry?
Why it’s the mortgage insiders!
Mortgage schemes come in many flavors, but the most common by far are conducted by industry insiders. Some 80% of all fraud losses involve collaboration or collusion by professionals, which is known as “fraud for profit,” according to the FBI.
Often the schemes involve inflated appraisals, falsified documents and fake buyers. The crooks take as much equity as they can out of a house before they stop making mortgage payments, usually leaving the lender stuck with the property.
In Las Vegas earlier this month, five people pleaded guilty in a scheme that cost banks $17 million. They were involved in recruiting people to pose as homebuyers, falsifying loan applications and then defaulting on mortgages. Six more people are awaiting trial in the case.
In other schemes, professionals steal people’s identities and credit histories to qualify for loans. Sometimes, the sham involves flipping a house from buyer to buyer, inflating its value, before abandoning it.
In some cases, industry insiders claim to help delinquent borrowers save their homes from foreclosure, but actually take the title of the home, strip out the equity and then desert it.
Foreclosure Phil and his cohorts were wrong to push through deregulation of the industry. Deregulation enabled a group of people that believed in “anything and everything for me at any cost to others” to grow and in the process destroyed their fellow man.
Law enforcement agencies started ramping up their investigations into mortgage fraud earlier this decade after seeing a spike in banks filing reports of suspected criminal activity. In 2004, they formed a mortgage fraud task force with local and state officials and, within 16 months, had charged more than 300 people with crimes ranging from doctoring loan documents to inflating property appraisals.
There are now 42 regional mortgage fraud task forces nationwide charged with rooting out criminal activity in the housing market, with many of them created after the sector starting imploding last year. One of the most recent was a squad in Southern California, a hotspot for mortgage schemes, which was assembled in June.
[...]Law enforcement officials have been busy in recent months. In the first four months of the year, the FBI obtained 189 indictments and 122 convictions, on top of 321 indictments and 260 convictions last year. The top markets for mortgage fraud include Florida, Georgia, Michigan, California and Illinois.
It appears that this is only the tip of the proverbial iceberg.
Meanwhile, the SEC extended a ban on short-selling of Fannie Mae and Freddie Mac stock until mid-August.
Federal regulators on Tuesday extended through mid-August a temporary order banning a certain kind of short-selling of the stocks of mortgage finance companies Fannie Mae, Freddie Mac and 17 large investment banks.
The Securities and Exchange Commission said the ban on so-called “naked” short selling will be in effect until 11:59 p.m. EDT on Aug. 12 and will not be extended.
Short sellers make a bet that a stock’s price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
Here’s the interesting thing — there are some that want regulations on short-selling or distort and short tactics.
After ban runs out, regulators will move to draw up formal rules to provide additional protections against abusive naked short selling in the broader market, while allowing legitimate short selling, the SEC said.
Advocates for smaller banks and investment firms have been urging the SEC to expand the ban on naked short selling to cover additional financial companies.
Funny how regulations helped a majority of people and companies earn and grow, while only a few profit from deregulation.
