Mortgage Fraud - It Never Left, it Simply Changed into a New Suit

Over appraisals, cash-out refinances, and inflated stated income may be a thing of the past but have no fear, new mortgage fraud strategies have found a new home. - (CNNMoney.com)


What's happening:

"The number of fraudulent loans issued during the second quarter this year increased 45%, compared with the same period in 2007, according to the Mortgage Asset Research Institute (MARI), a service of LexisNexis."

Popular mortgage fraud during the housing boom:

"During the boom, that might have meant a buyer who inflated his income to qualify for a bigger loan. Some went so far as to get a fake appraisal, invent a fake buyer, and after securing a mortgage, absconding with the cash."

Today's mortgage fraud:

"One modern gambit is under-appraising property values.

These schemes involve short sales, which come up when a struggling homeowner is 'underwater,' or owes more on his mortgage than the home is worth.

When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference.

When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices - well below true market values.

If busy bankers don't check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less.

The buyers - in cahoots with the owner - then flip them for a big profit."

Still more fraud - "new liar loans" for a depressed housing market:

"During the boom, many borrowers misrepresented their income or assets with 'no-doc liar loans,' approved on the basis of good credit scores with no documentation.

After the mortgage meltdown, no-doc loans vanished, but applicants who lie have not.

'Liar loans are now fully documented - but with really good fraudulent documents,' said Hagberg.

In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary.

Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand."

One more spin - "Buy and Bail":

"This is a new scheme that had no equivalent during the boom years.

You're underwater on your mortgage and want a new, cheaper home down the block.

You could just bail on the existing home, but no lender would give you a mortgage for the new one.

So you tell the bank you plan to rent out the current home - even though you have no intention of doing so.

'This is a very difficult scam to pin down,' said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders."

Different times, different tactics, business as usual.