I read this story three times today — the Washington Post has this fascinating look at mortgage fraud and some of the ills hidden for so long by a rapidly escalating national housing market:

No one knows exactly how extensive the crime has become, but new data from the federal government suggest that it has jumped tenfold since 2000. Prosecutors are finding cases all over the country in which sham transactions, based on fraudulent appraisals, led to homes changing hands at far above their real value. Mortgage lenders failed to carry out the most elementary safeguards.

In some neighborhoods, mortgage fraud became so extensive that it drove up overall home prices. That is what happened in Atlanta. … Federal prosecutors say this kind of fraud is hardly unique to Atlanta — the lax lending standards that Hill exploited have existed throughout the country in recent years.

The story identifies two types of mortgage fraud. One is “fraud for housing,” where otherwise normal home buyers lied on their home loan applications to get into homes they’d otherwise be barred from buying. Often, they did so using stated-income loans, or “liar loans,” where their incomes and assets were not checked by the broker. Even though this was rampant, it’s still illegal. Lying on a mortgage application is a federal crime.

The other type, called “fraud for profit,” focuses on scam artists who found straw people with good credit histories to lend their names to a mortgage application, while the scam artists pocketed profits.

Here’s just one example:

Phillip Hill lured people to fancy cocktail parties in a $1.9 million mansion. He asked to use their names and credit histories in real estate deals, promising to make them rich. Most got $10,000 checks on the spot for signing up.

By the time the scam unraveled, the credit of those participants had been ruined, hundreds of upscale properties had fallen into foreclosure and real estate prices had plummeted in some of this city’s most exclusive neighborhoods. Hill is about to go to federal prison.

Finally, I thought this snippet was incredible:

About 70 percent of Americans get their home loans from independent mortgage brokers, many of whom are paid bonuses for pushing higher-interest loans.

I’ve heard, and reported, a lot about some brokers pushing certain loans over others because of the higher commissions and fat bonuses enticing them to do so. The fact that 70 percent of Americans are using those independent brokers means there’s a huge demand for their services.

Have you heard about any of these types of mortgage frauds locally? I’ve had a couple come across my desk and I’m gathering more information for a future story. As always, click my name below to send me an e-mail if you’ve some thoughts to share.


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