Fraud and Prevention

Thousands of Industry Fraudsters Have Been Ousted

By Lew Sichelman
October 28, 2009

Industry insiders who commit fraud are being blacklisted as quickly as they can be found out, panelists said at the New England Mortgage Bankers Conference in Providence, R.I.

Freddie Mac now has nearly 2,000 names on its exclusionary list, while the Department of Housing and Urban Development's Office of the Inspector General suspended or disbarred more than 1,000 people from dealing with the Federal Housing Administration last year alone, the speakers reported.

"I'd like to say there are just a few and apples in our industry," said Kathy Cooke, Freddie Mac's fraud investigation manager. "But there are a lot of bad apples, and they make the entire industry look bad."

Michael Motulski, assistant regional inspector for audit in HUD's six-state New England region, said "fraud for housing" constitutes 20% of the cases investigated by the HUD inspector general, while "fraud for profit" accounts for 80%.

But in every case, an industry professional is involved, he added, either by assisting a borrower in the latter or being one of the perpetrators in the former.

Mr. Motulski, who works civil cases in Maine, New Hampshire, Vermont, Connecticut, Massachusetts and Rhode Island, said that in addition to the administrative actions taken against appraisers, brokers, realty agents, closing attorneys and other industry insiders, the IG's office made 1,524 arrests in fiscal 2008, gained 1,180 indictments and earned 969 convictions.

"We go after folks," he said. "Up to and including monetary penalties, we get people out of our programs."

As far as industry insiders are concerned, fraud has changed from a matter or opportunity to one of desperation, added Diane DeChellis, the special agent in charge of the New England region's IG office. "It's not just lifestyle anymore," she said. "It's almost a survival thing right now."

Mr. Motulski said his office is seeing a growing number of cases involving Home Equity Conversion Mortgages, particularly those dealing with forged powers of attorney.

In her presentation, Ms. Cooke said Freddie Mac investigators never go into the field alone. "We always go out in pairs," she said. "You never know what you are going to find."

While all kinds of fraud tend to get the 27-year industry veteran's dander up, a category known as "affinity group" fraud probably angers her the most, she told the conference.

"Affinity fraud exploits the trust and friendship that exist in groups of people who have something in common, whether they are church groups or young soldiers going off to war," she said. "They believe, they trust and they are betrayed."