An Industry That Won't Quit: Mortgage Fraud

Through all the ups and downs of the U.S. economy, at least one industry continues to thrive.

"Mortgage fraud enables perpetrators to earn high profits through illicit activity that poses a relative low risk for discovery," according to the Federal Bureau of Investigation.


Yes, still. And, if anything, it's getting worse, the FBI reports in its recently released year-in-review report on mortgage fraud for 2010.

You'd think that since mortgage fraud more or less toppled the U.S. economy and its banking system, every lender would be on the lookout for it.

You'd also think fewer home sales would equal fewer mortgage originations and less mortgage fraud on a sheer percentage basis. But no.

The FBI says an army of professionals, and even a few ethnic gangsters, are still out there ripping off lenders, despite all the warnings about criminal mortgage practices in the headlines.

It's all the usual suspects, too: mortgage brokers, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, lenders, and bank and trust account representatives.

And they're playing all the same old games, from inflating appraisals and fabricating income statements to recruiting straw buyers.

There's also been an increase in scams taking advantage of a market that is clearly still on its way down. These involve short sales, loan modifications, firms that offer to rescue troubled home buyers from foreclosures, bank-owned properties and homes with negative equity.

Hey, what else can you do for a living when unemployment is stuck at more than 9%?

"The continuing depressed housing market will likely remain an attractive environment for mortgage fraud perpetrators," the FBI reports.

The FBI's caseload jumped 12% in 2010 to 3,129, with most cases coming from California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland and New Jersey. And those are just the people who got caught.

"Perpetrators...will continue to seek new methods to circumvent loopholes and gaps in the mortgage lending market," the FBI predicts.

The FBI says it's unable to tally the economic damage. It can only cite a report from data and analytics firm CoreLogic counting more than $10 billion in loans made on fraudulent application data in 2010. The FBI report also cites data from RealtyTrac, which reported 2.9 million foreclosures in 2010, up 2% over 2009 and 23% over 2008.

Most of us reading the financial news have moved on to worrying about a downgrade in U.S. debt, the latest decline in the stock market, the possibility of a new recession and whether a slowdown in Germany is going to bring European debt problems to a boil. And yet the original banking problem has yet to be addressed: basic underwriting.

How hard can it be to rob a bank? They've known about mortgage fraud for years, and they're still falling prey to the schemes of penny-ante crooks?

The rise in mortgage fraud has been like a surge in bank robberies after banks decided to leave their safes unlocked. And now it looks like the safes are still unlocked.

No wonder the FBI is busy.

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at or