Mortgage Fraud Is Still a Big Growth Business

Las Vegas-There's no question mortgage fraud is a big-ticket item. But it may be bigger than most industry executives believe, speakers at the Mortgage Bankers Association's National Fraud Issues Conference said here. And the crime isn't going to go away anytime soon.

The last official count from the Federal Bureau of Investigation put the industry's annual loss due to mortgage fraud at $5 billion. But Scott Broshears, the special agent in charge of uncovering and prosecuting the loan fraud, said his agency is "probably easily investigating" crimes valued at double that amount.

But Merle Sharick, representing the Mortgage Asset Research Institute, trumped the G-man from Washington. He said that when all is said and done, losses in 2008 will run between $15 billion and $25 billion.

"Mortgage fraud is a giant and growing cause of losses," Mr. Sharick told the conference.

The MARI spokesman, who is now a vertical solutions consultant for LexisNexis, MARI's latest owner, also predicted that the number of suspicious activity report filings will continue to grow.

At last count - for the 12-month period ended June 30 - the Treasury Department's Financial Crimes Enforcement Network said financial institutions had filed 62,084 SARs. But Mr. Sharick said that number could grow to more than 75,000 within two years.

And FinCEN director James Freis didn't disagree. He told the meeting that the number of reports filed in the current 12-month reporting period might reach the total number of SARs filed over the last decade. Already, he added, the number of filings have increased threefold in the 10-year period ended in 2006.

Lending further credence to the belief that much of the fraud for profit is taking place at the hands of organized crime, Mr. Freis also said his agency has noticed a direct link between mortgage fraud and money laundering.

"Mortgage fraud is a highly moving target that requires the disposition of large sums of cash," he said. "These are often interconnected. These are not separate things. Profits need to be integrated into the financial system."

The FinCEN director said there is a direct connection between loan fraud and the money services business, particularly check-cashing operations. He also mentioned securities dealers and insurance agents as other potential conduits.

Another speaker, Scott Brower, the U.S. attorney for Nevada, told the conference that even with the change in administrations in Washington, mortgage fraud "will be on our radar screens for the foreseeable future.

"We're trying to get ahead of the problem, but I'm not sure anybody in law enforcement can," Mr. Brower said. "We're just scratching the surface. We're likely to be very, very busy for months and years to come."

He also said fraud is a priority within the Department of Justice, just as it is with Treasury.

Jeffrey Klurfeld, the Western regional director of the Federal Trade Commission, spoke of his agency's enforcement actions, particularly against companies that promise to save the homes of financially troubled borrowers. There has been "a substantial increase in complaints" against such companies, he said.

But he singled out those that charge consumers thousands of dollars under the premise that the firms will work with the borrower's lender to renegotiate the terms of their loans, only to tell them in the end to file for bankruptcy.

"Rarely have I seen a fraud as heartless as this," the FTC official said. Those who perpetrate this swindle "deserve a special place in the gallery of rogue scam artists."

Mr. Sharick, the MARI spokesman, said fraud is likely to increase if only because those who have lost jobs in the technology and banking fields due to the recession will be forced to find income.

"Once a crime of opportunity," he said, "fraud is now a crime of necessity."

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