Mortgage Fraud Seen As a National Epidemic

Mortgage fraud may become a "national epidemic," the Federal Bureau of Investigation told Congress last week.

Testifying before the Subcommittee on Housing and Community Opportunity, a senior FBI official said mortgage fraud cases have increased significantly this year compared to three years ago.

Chris Swecker, assistant director of the FBI's criminal division, blamed the problem on industry insiders.

"Based upon existing investigations and mortgage fraud reporting, 80% of all reported fraud losses involve collaboration or collusion by industry insiders," he said.

Mr. Swecker said the most common frauds involve falsely inflating property values as a way to remove home equity.

In testimony before the subcommittee, the Department of Housing and Urban Development's inspector general raised concerns regarding the Federal Housing Administration's susceptibility to mortgage fraud, in particular "property flipping" and "equity skimming" schemes.

First-time and uneducated FHA borrowers are the most vulnerable to mortgage fraud, the agency said.

"Our investigative workload is increasing with more than 450 open criminal single-family investigations and our arrests in the single-family mortgage area have increased by 800% in a four-year period," said Kenneth Donohue, HUD's inspector general.

In the Phoenix area alone, 74% of FHA loans originated by a correspondent and approved by HUD were issued with false documents, he said.

HUD assistant secretary John Weicher told the subcommittee, "HUD believes that our first line of protection is an informed consumer. Housing counseling has proven to be an extremely important activity to educate consumers on how to avoid abusive practices."

Subcommittee chairman, Robert Ney, R-Ohio, said, "Consumers are not the only ones affected by abusive lending practices. Financial institutions and other lenders are also victims of mortgage fraud and lose millions each year through this type of corruption."

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