Mortgage Fraud Summit
March 5, 2010
The mortgage fraud problems continue and it’s costing billions of dollars. Law enforcement continues the battle. If you have a foreclosure problem, be very careful.
Mr. Schiff: Hello I’m Neal Schiff and welcome to Inside the FBI, a weekly podcast about news, cases, and operations. The mortgage fraud problems continue and it’s costing billions of dollars. Law enforcement continues the battle. If you have a foreclosure problem, be very careful.
Ms. Ormsby: “I would say to anybody who is in a situation where they're defaulting on their loan and could go into default, and they are trying to save their home, is use a reputable firm and be careful of any cold calls that they receive at their home or residence, where they are being solicited to use a particular company to stop the foreclosure action.”
Mr. Schiff: That’s FBI Special Agent Sharon Ormsby. She’s the chief of the FBI’s Financial Crimes Section in the Criminal Investigative Division at Headquarters and attended the recent Mortgage Fraud Summit in Miami.
Ms. Ormsby: “The summit was put together to provide information to the public as to what law enforcement is doing regarding the financial crisis. And this is being done through an initiative by Department of Justice—it's called the Financial Fraud Enforcement Task Force, and it’s meeting with public to talk about community impact, and meeting with law enforcement in these regional areas to discuss what we're doing to handle the fraud.”
Mr. Schiff: How serious is mortgage fraud across the United States?
Ms. Ormsby: “Mortgage fraud is an increasing fraud problem for us. In 2003 for an example, we had over or approximately 7,000 suspicious activity reports. Today, or as of 2009, we had about 66,000 approximately. We expect 2010 to exceed that, to be somewhere in the 70,000s of suspicious activity reports related to mortgage fraud. So for us, we see the problem has been increasing over the years for the last seven years; we also see that the amount of the increase is not as large as what it has been, so I don’t know if we can say, with guarded optimism, that possibly this is leveling off .”
Mr. Schiff: This stretches our resources doesn’t it?
Ms. Ormsby: “It does require us to be very efficient in the way we go after the law enforcement problem. It allows us to be more efficient in the way we attack this particular crime problem. We utilize working groups and task forces to better address the financial crisis.”
Mr. Schiff: Is there a light at the end of the tunnel where these problems may finally go away at some point or drop down to the levels that it was before the nation's financial crisis occurred?
Ms. Ormsby: “Mortgage fraud has been with us for many years and it will continue to be with us in many different forms. Unfortunately, mortgage fraud is one of those types of crimes where if the economy is good, we see mortgage fraud in the form of loan origination fraud. If the economy is bad, meaning that this current situation where houses or people and houses are under water, then what we start seeing is foreclosure rescue scams and loan modification scams. And so unfortunately, whether the economy's good or bad, mortgage fraud is going to be with us.”
Mr. Schiff: What is mortgage fraud? Can you give us a couple of examples?
Ms. Ormsby: “Mortgage fraud is just a series of types of schemes that people use when they’re going for a loan on a home. An example is loan origination frauds, or what we would call property flip-type frauds. Those are frauds where an individual obtains a loan, but misrepresents something about themselves for that loan—whether it’s their income, their debt, their employment, their assets, evaluation of the property—and they do this to facilitate their ability to qualify for their loan.
And it’s causing the bank to then give them the loan, believing they can afford the loan, when in actuality, they can’t. We’re not looking at the fraud for housing aspect of this, which is what I just spoke more to, we are looking at this from a criminal enterprise, where people are doing a fraud for profit, where they’re doing this on multiple homes, trying to take the money out of the home as ill-gotten gains and then allowing the loan to default and go into foreclosure.
The other type of loan fraud is foreclosure rescue, and that’s a difficult type of fraud in the sense that individuals become victimized when they are already in a default status. They’re looking at a potential foreclosure on their home, and they get a cold call; they’re contacted by somebody who says, ‘I can help you get out of default,’ or, ‘I can help you get out of potential foreclosure.’ What happens is they pay an advanced fee, and they never see the individual again, and the home goes into foreclosure. The sad part about that is the money that they pay is usually equal or more to a mortgage payment, and they might have been able to stave off their pending foreclosure.”
Mr. Schiff: Could you give us an example or two of some successful operations the FBI has conducted over the last couple of years where we’ve solved some serious mortgage fraud cases?
Ms. Ormsby: “We have had many successful cases. For example, in October of 2009 we had Operation Bad Deeds, which involved a multi-state takedown in New York state, resulting in 41 defendants being charged. There were $64 million in residential home mortgages involving more than 100 properties. Those defendants included lawyers, loan officers, brokers, accountants, and property appraisers.
In January 2010, we had a case in Miami where we indicted individuals, which we call the Hernandez Case. There were 10 mortgage fraud subjects; it was $24 million in loan proceeds; and the projected loss in that area related to that crime was approximately $7 million. The case involved the recruitment of straw buyers with good credit and they actually used their good credit to purchase loans in exchange for a fee. Then they would buy multiple properties and those properties would go into default, and the criminal enterprise took the money as ill-gotten gains.”
Mr. Schiff: With this mortgage fraud situation being serious maybe in all 50 states, what was discussed at the Mortgage Fraud Summit? What where some of the major things that were covered?
Ms. Ormsby: “We discussed with the public the community impact. We discussed the evolution of mortgage fraud, and then we also had an internal summit with other law enforcement regarding how mortgage fraud was being addressed in their area.”
Mr. Schiff: When we're working these mortgage fraud investigations, who are some of our partners?
Ms. Ormsby: “We partner with federal, state, and local law enforcement, so some of our partners are the Housing and Urban Development - Office of the Inspector General, Federal Deposit Insurance Corporation - Office of the Inspector General, U.S. Postal Inspection Service, United States Secret Service, Internal Revenue Service - Criminal Investigative Division, many state attorney general's offices, the local law enforcement offices, including municipalities and sheriff's departments. And we all work together under mortgage fraud working groups or mortgage fraud task forces. We have approximately 23 task forces and approximately 67 mortgage fraud working groups.”
Mr. Schiff: Are there any new initiatives regarding the mortgage fraud problem?
Ms. Ormsby: “The way law enforcement is dealing with the mortgage fraud problem is we’re using some very unique initiatives, or at least I see as unique initiatives, for the white collar crime program. For instance, we stood up the Financial Intelligence Center, which we call the FIC. The Financial Intelligence Center will use intelligence collected from various data sets and databases, and we will proactively analyze the data to try to find a way to identify criminal enterprises. And it is very unique the way we do this because we take data sets from various sources, I call it virtually stacking the data, and then we use a software program to cull out the common theme, which is going to be a group of individuals. And we are starting to do this with some success and it's a new program, so we're still getting it up and running. We’re hoping it’s going to be a good program for us.
The next thing that we're doing is working and partnering with the Department of Justice. We’re working in Las Vegas on a strike force concept where we are going after criminal enterprises while we are also working in conjunction with the Department of Justice Fraud Section to do prosecutions of those subjects in a more efficient manner. We're trying to be innovative in how we are identifying the subjects and how we're pursuing the individuals through law enforcement and prosecutive means, and those are two examples.
The third one I’ll throw to you is something that I’ve already talked about, is the task forces and the working groups. What's unique about that is in white collar crime, we seldom use those types of activities; we seldom use those types of task forces. But what we're finding is we are able to use the task force as a force multiplier; we use it as an expertise builder, and we also can expand our level of prosecutive venue through these task forces, so we find them to be very helpful in law enforcement.”
Mr. Schiff: What are some tips you can provide to people who are moving into a foreclosed situation?
Ms. Ormsby: “I would say to anybody who is in a situation where they're defaulting on their loan and could go into default, and are trying to save their home, is use a reputable firm and be careful of any cold calls that they receive at their home or residence, where they are being solicited to use a particular company to stop the foreclosure action. Usually, a reputable company is not going to do cold calls to your house. So that's just a red flag that we throw out. Also, when dealing with anybody to refinance a loan or when getting a loan or getting out of foreclosure, make sure you read all your documents, make sure that you have a third party that will help you understand the documents that you’re going to be asked to sign. Don’t sign any blank documents, and just become as educated as possible about the process so that you're an informed consumer when it comes to obtaining a loan.”
Mr. Schiff: In the past three years, FBI data shows that the number of mortgage fraud cases has jumped from around 1,200 to about 2,400. There have been a lot of charges filed, many arrests, and more than 1,200 convictions in the past three years. If you think you are a victim of mortgage fraud, please call the nearest FBI office and a special agent will assist you. There is more mortgage fraud information on the Internet at www.fbi.gov. That’s our show for this week. Thanks for listening. I’m Neal Schiff of the FBI’s Office of Public Affairs.
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