Agencies Quick to Cut Fraudsters

Industry insiders who commit fraud are being blacklisted as quick as a Nolan Ryan fastball, panelists at the New England Mortgage Bankers Conference in Providence, R.I., said. 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, they reported. "I'd like to say there are just a few bad 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 all cases, 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, 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."