Mortgage experts outline litany of dirty deals
Mashantucket - Developers trying to unload a backlog of properties, brokers falsifying documents and real-estate agents taking advantage of clients desperate to get out from under impossibly expensive loans are three of the more common mortgage-fraud scenarios these days, according to a panel of experts who spoke Friday at the New England Mortage Expo at Foxwoods Resort Casino.
"Servicing fraud is the majority of our workload," said Kathleen Cooke, fraud investigations manager for the mortgage giant Freddie Mac, during a presentation at the MGM Grand convention center.
Falsifying occupancy status to obtain a loan modification is one of the more regular problems Freddie Mac encounters, Cooke said. Some people also falsely depress their income on loan documents to gain better interest rates, she said, while others overstate income to qualify for a higher loan.
Peter Emerzian, the Federal Housing Finance Agency's deputy inspector general for investigations, said another common problem involves real-estate professionals who acquire their clients' so-called "short-sale" homes - residences worth far less than what owners originally paid - and then flip them for large profits.
This scheme sometimes involves what Cooke called "reverse staging" of a property - real-estate agents taking pains to make homes look as bad as possible to get appraisal companies to low-ball a home's estimated value. Some appraisals knock $50,000 to $200,000 off the value of a home, giving those who buy property in short sales the chance for large profits.
"It's incredible what they go through to depress that value," Cooke said.
Another case of fraud seen recently, Emerzian said, involved a California building company that prosecutors are claiming offered cash incentives ranging from $30,000 to $50,000 for purchasers of condominiums - but didn't disclose the information on U.S. Department of Housing and Urban Development documents. Such "builder bailout" transactions are meant to inflate the value of a property so that other buyers will pay the higher price later on and appraisal companies will back the sales, he said.
Another popular fraud involves the rental of properties by companies that don't actually own the homes. People sign a lease, give these companies the first and last month's rent and a security deposit but don't realize they've been duped until they try to move in.
"We see fraud throughout the whole entire mortgage process," Emerzian said.
Nancy McCormick, a Boston-based special agent for the FBI, said loan-origination fraud was popular when the real-estate market saw boom times a few years ago, but fraudsters have largely turned to other methods in the past few years. Now, condo-conversion fraud and advance-fee loan modifications are some of the areas the FBI is monitoring, she said.
With condo conversions, buyers are sought to pay high prices for rehabilitated buildings whose value is artificially inflated - with buyers getting large kickbacks often totaling $35,000 to $50,000.
Advance-fee mortgage modifications, frequently targeting illegal immigrants, are scams in which companies promise to help lower unaffordable loan payments and then, when that doesn't work, offer bankruptcy services - all for money in advance.
The panel, which included Connecticut Assistant State's Attorney Michael McGarry, said authorities were generally harder on professionals than on unsophisticated "straw buyers" when it comes to prosecution of mortgage-fraud cases.
"If it's a lawyer, we're going to look really long and hard and try to take that case," McGarry said.
Prosecuting less sophisticated people who are told to sign on the dotted line gives him pause, he added.
"Those are the types of things that keep me up at night," McGarry said.
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