mortgage fraud: fincen and fbi reports the anti-money laundering association may 21, 2008
TRANSCRIPT
Mortgage Fraud: FinCEN and FBI Reports
The Anti-Money Laundering Association
May 21, 2008
Mortgage Fraud and Terrorism
Headlines from the Mortgage Fraud Blog (www.mortgagefraud.org)
FBI Joint Terrorism Task Force Makes Arrests in Fraud and Money Laundering Cases
Man Suspected Of Bin Laden Link Accused of Fraud
Man awaiting trial on terrorism charges pleads guilty to mortgage fraud
FBI says Hezbollah raising money through Mortgage Fraud
Agenda
• Mortgage Fraud Basics• Highlights of FinCEN and FBI reports• Fraud Types• Fraud Schemes• Red Flags• Best Practices
Mortgage Fraud Basics
• Fraud for housingMisrepresentations by the applicant for the purpose of purchasing a property. Although applicants may embellish income and conceal debt, their intent is to repay the loan.
• Fraud for profitElaborate schemes, typically involving multiple loans, perpetrated to gain illicit proceeds from property sales. Gross misrepresentations concerning appraisals and loan documents are common in fraud for profit schemes and participants are frequently paid for their participation.
Mortgage Fraud
The appraisal described the above property involved in a fraud scam as “recently renovated condominium” to include Brazilian hardwood, granite countertops, and a value of $275,000.
Fraud Reports
FinCEN
Mortgage Loan Fraud
An Update of Trends based Upon an Analysis of Suspicious Activity Reports
April 2008
FBI
2007 Mortgage Fraud Report
April 2008
Mortgage Fraud SAR Filings
3,515 4,696 5,3879,539
18,391
25,989
37,313
52,868
0
10,000
20,000
30,000
40,000
50,000
60,000
2000 2001 2002 2003 2004 2005 2006 2007
Source: FinCEN
Growth in Mortgage Fraud
Illinois 75.8%California 71.3Florida 53.0Michigan 51.5Arizona 48.7
Growth in mortgage fraud SARs from depository institutions, 2006 vs. 2005.Source: FinCen
MARI Fraud Index
Florida 215Nevada 204Michigan 200California 170Utah 156Georgia 125Virginia 114New York 94Minnesota 90
Source: Mortgage Asset Research Insititute, LLC
Fannie Mae Misrep Zip Codes1. 554 Minneapolis, MN
2. 303 Atlanta, GA
3. 482 Detrooit, MI
4. 381 Memphis, TN
5. 330 Pompano Beach, FL
6. 331 Miami, FL
7. 891 Las Vegas, NV
8. 551 St. Paul, MN
9. 923 Victorville, CA
10. 925 Moreno Valley, CA
Top 10 zip codes (first three digits) for mortgage misrepresentationSource: Fannie Mae
Fraud Hot Spots 1Q2008
• Detroit• Miami• Tampa• Washington – Baltimore• Chicago• Cleveland• Ft. Myers
Based on number of misrepresentation insurance claims filed in first quarter 2008Source: The Prieston Group
Fraud Types
Income/asset/debt misrep 43.0%Forged/fraudulent docs 28.0Occupancy fraud 14.4ID fraud/theft 13.6Appraisal fraud 13.1Straw buyer 5.7Property flip 2.7
Based on a statistical sample of SARs filed between April1, 2006 and March 31, 2007.Source: FinCen
Fraud Types
Occupancy fraud 63.3%Hidden debt 35.0Employment 26.7ID fraud/theft 13.6Straw buyer 10.0Appraisal fraud 5.0
Fraud types found in misrepresention insurance claims, first quarter 2008Source: The Prieston Group
Emerging Fraud Schemes
• Identity Theft• Builder Bailout• Seller Assistance• Short Sale• Foreclosure Rescue• Reverse Mortgages
Identity Theft
• Identify theft up 95.6% over previous report
• Primarily associated with “fraud for housing”
• Subject of new FACT Act regulations requiring identity theft procedures byNov. 1
Builder Bailout
• Builder inflates sales price• Builder loans borrower the down payment• Loan appears to have equity• Actually 100%+ LTV
Seller Assistance Scams
• Perpetrator finds desperate seller• Inflated appraisal• Buyer purchases at inflated price, borrows
based on inflated appraisal• Perpetrator pockets difference between
inflated sales price and original asking price.
Short Sale
• Loan in foreclosure• Perpetrator buys home for less than fair value• Perpetrator sells home at actual value or flips
at inflated value
Foreclosure Rescue
• Home in foreclosure• Perpetrator convinces homeowner he can
save home from foreclosure• In worst scenario, homeowner signs over
home to perpetrator
Loan Characteristics
• Single borrower• Borrower owns rental property• Stated income• Purchase transaction• No realtor involved
Best Practices
• Closing instructions instruct closing agent to notify the lender prior to closing the loan if – title has changed hands within 180 days– mortgage is 25% larger than previous mortgage made
within 180 days– other transactions involving the borrower(s) or the subject
property• Closing Instructions instruct closing agent to only
accept funds from the borrower and only from an account verified by the lender as part of underwriting/processing
Best Practices
• Perform a verbal VOE using directory assistance or similar third party service
• Obtain a copy of borrower's business license• Obtain a signed 4506T for nonsalaried borrowers• Obtain and review an independent credit report on
all broker transactions• Funds to close must be verified and seasoned for at
least sixty (60) days• Check investor ineligible lists
Red Flags
• Application• Appraisal• Credit report• Sales contract• Title• Asset verification• Employment verification• Income• HUD-1
Best Practices
• Perform a review of both the seller and buyer columns of the HUD-1 prior to funding for uncommon contributions and/or unusual payouts to parties that are not noted as lien holders on the title commitment
• Perform a comparison of the title commitment, the appraisal, and the sales contract on all purchase money loans to ensure the owner of record on the commitment/binder matches the owner on the appraisal and the seller on the sales contract
Contact Info
Jim Mitchell
Director - Business Development
813-996-9671
Mike Forester
Managing Director
847-612-2314
CrossCheck Compliance LLC
11 South LaSalle Street, Fifth Floor
Chicago, IL 60603
312-346-4600
www.crosscheckcompliance.com