The nation's leading mortgage industry group said Thursday that it will work more closely with the FBI to combat mortgage fraud, a rapidly escalating crime that costs an estimated $6 billion annually.
Representatives of the Mortgage Bankers Association and the FBI made the announcement at the association's mortgage fraud conference Thursday at the Omni Hotel in San Diego. Earlier this week, the FBI called mortgage fraud "pervasive and growing," saying that crimes had doubled in the last three years.
For consumers, the push to target mortgage crimes will mean increased visibility of the FBI's fraud warning notice at mortgage loan offices and on Web sites. The notice states that making a false statement to a financial institution is punishable by up to 30 years in federal prison, a $1 million fine, or both.
Mortgage fraud is on the increase in the wake of a national real estate boom that saw mortgage lenders loosen their lending standards by offering alternative or exotic loans. Consumer advocates say that lenders were only too eager to use these products to put borrowers into loans that they could not afford.
California ranks third in the nation for mortgage fraud, behind Utah and Florida, an association speaker said.
A whole new genre of organized criminals has gravitated to mortgage fraud in recent years, David S. McLaughlin, Georgia senior assistant attorney general, told conference attendees. Many have moved from drug crimes to identity theft and now mortgage fraud.
They prey on sellers who need to get out of their adjustable-rate mortgages and home sellers tired of waiting in a slow market, he said. They also target elderly homeowners who have no mortgage debt, take out loans on their property using false documents, and walk away with hundreds of thousands of dollars. The crime typically goes unnoticed until a homeowner has died and survivors discover the fraud while settling the estate.
The prosecutor said criminals use "stated-income" loans, which require little income documentation, inflated appraisals and phony powers of attorney.
Merle Sharick of Mortgage Asset Research Institute said that the leading reasons for fraud were incomplete employment history, incorrect income and invalid Social Security numbers.
To combat crime, the industry is hoping to establish a database of crooked appraisers, real estate agents and others that would be shared by all lenders and would be protected by law from libel suits.
John M. Robbins, chairman of the Mortgage Bankers Association, said in an interview that the problem is not with alternative or exotic mortgages: "The issue is how you use the products."
Robbins said that with the current wave of foreclosures, lenders are willing to "rework" loan terms ---- from adjusting monthly payments, to adding unpaid interest to the loan balance, to taking over the property in lieu of foreclosure and forgiving the difference between the amount owed and the price the home brings on market.
He noted that homeownership is at a record high nationally and that flexible mortgages have significantly increased the numbers of Latino and black homeowners.
"Our interests are absolutely aligned with the homeowners," he said. "We want to keep clients for life."
