As the website for the Federal Bureau of Investigation specific to mortgage fraud states, the three main illicit activities that it investigates are “Emerging Schemes,” “House Stealing,” and “Reverse Mortgages.” The first, “Emerging Schemes,” is itself a broad category of illicit activity including such subcategories as “loan origination schemes,” “backwards application schemes,” “fraudulently appraised appraisals,” “illegal property flipping,” “title/escrow/settlement fraud/non-satisfaction of mortgage,” “real estate investment schemes,” “short sale schemes,” “commercial real estate fraud loan,” “foreclosure rescue,” “advance fee schemes,” “builder bailout schemes,” “equity skimming schemes,” and “debt elimination/reduction schemes.” Within this broad category of mortgage fraud, the overwhelming majority of cases investigated by the FBI involve “loan origination schemes,” accounting for 62 percent of the total. “Loan origination schemes” generally involve deceptive practices on the part of the borrower, who is overstating revenue and understating debt for the purpose of securing a loan on the most favorable terms. Such activities, while illegal, are not necessarily executed with criminal intent inasmuch as the applicant may have every intention of repaying the loan, but simply hopes to secure a loan in the first place. The more pernicious type of activity associated with “loan origination schemes” involve individuals who apply for mortgage loans with criminal intent, meaning they hope to profit from such schemes without necessarily applying the loan to a primary place of residence. Irrespective of intent, however, both types of applicants are conducting fraudulent activities by virtue of their conscious decision to provide false information on the loan applications.
The next most common type of “loan origination scheme” is “title/escrow/settlement fraud,” which accounts for 14 percent of the total caseload. This category of fraudulent activity can be executed by either the lender, the borrower, or by both in a collaborative plan to defraud the lending institution. In may entail the use of borrowed funds for purposes other than those specified in the loan contract. A common practice is for the bank officer to divert loan money toward his or her own account or to falsify deeds and associated documentation.
The second major category of mortgage fraud is “house stealing.” This type of illicit activity involves identity theft by a perpetrator or perpetrators in which the those committing the fraudulent activity assume, through the theft of the victim’s personal information, including his or her Social Security Number, the identity of the targeted individual(s) and successfully transfer ownership of the victim’s property to his or her own. By purchasing a blank deed from an office supply store, the perpetrator(s) can initiate the process by which the property in question is seemingly legally transferred away from the rightful owner. [See, for example, “Can’t Steal a House? Think Again,” http://www.cbsnews.com/news/cant-steal-a-house-think-again/]
The third major category of mortgage fraud is the use of so-called “reverse mortgages,” a legitimate form of financial transaction that can be abused for criminal purposes. “Reverse mortgages” often involve the category of individual most likely to be victimized by fraudulent activity in the first place, the elderly. The home-owner agrees with the lending institution to receive the equity in the home, which does not have to be repaid, in exchange for the lending institution taking ownership of the home following the elderly individual or couple’s death. According to both the FBI and the U.S. Department of Housing and Urban Affairs, “reverse mortgage” schemes are a fast-growing type of mortgage fraud. Because the transaction involves the transfer of equity from lender to elderly consumer, the latter often unable to comprehend the complexities of the arrangement, criminally-minded employees of the lending institution divert equity from the rightful recipient, the home-owner, to his or her own account.
These are the three main types of mortgage fraud investigated by the FBI. Unfortunately, the complexity inherent in the mortgage industry allows for the manipulation of documentation and diversion of funds at the expense of consumers and, also, by fraudulent borrowers at the expense of lenders.