What mortgage fraud costs you Mortgage fraud costs honest borrowers a lot of money. How much is anyone's guess .
Investigators know that mortgage fraud runs rampant, especially in the traditional hotbeds of Florida and California.
The owners of mortgage debt lose money on fraudulent loans that go bad, and the losses ultimately are passed along to borrowers. So you would expect mortgage rates in high-fraud states to be higher, right? It's not that simple. Look at Miami and Houston.
The Mortgage Asset Research Institute, which collects and analyzes data about mortgage fraud, compiles an annual, state-by-state fraud index in which a score of zero indicates no reported fraud and 100 indicates that the reported fraud for the state is exactly what you would expect, given the population. In the first 10 months of 2001, Florida scored near the top at 174. Texas scored 38, so it had relatively little fraud.
Even though Florida has a much higher rate of fraud, lenders in Miami offered better rates than lenders in Houston, according to data collected weekly by Bankrate.com . In 2001, the top 10 banks and thrifts in Miami offered an average mortgage rate of 6.96 percent, while the top 10 banks and thrifts in Houston offered an average mortgage rate of 7.08 percent.
There are two basic kinds of mortgage fraud. There's the type where someone falsifies information to get an application approved. Then there's the kind in which an organized ring systematically fleeces lenders by "flipping" properties - buying and selling them rapidly at greatly inflated prices, backed up by phony appraisals, and pocketing the loan money.
How much does all this cost? "Nobody knows and I doubt that anyone will ever know ," says James Croft, executive director of the Mortgage Asset Research Institute. "Most companies don't know because they can't differentiate between credit risk losses , fraud losses, or a combination of the two."
Take someone who falsifies his paycheck stubs and tax returns to qualify for a mortgage that he otherwise wouldn't qualify for. He is laid off four years later and goes broke. The lender forecloses on the house and loses money because of legal and renovation costs, lost interest income, and Realtor commissions. Do you count that as a fraud loss, a credit-risk loss, or both? Ask three bankers and you might get three answers.
There is no dispute over the type of loss caused by land-flip rings, such as the alleged $15 million scheme uncovered in 2001 in Miami. Luis Lorie and his wife, Lourdes , were accused of engineering a scam in which "interim buyers" bought houses from legitimate sellers. The interim buyers immediately sold the houses to "straw buyers " at hugely inflated prices backed by phony appraisals. The straw buyers collected the purchase money from mortgage lenders that were duped by the phony appraisals . Participants in the scam split the ill-gotten proceeds. The lenders lost money.
In the end, the biggest loser isn't necessarily the lender or the investor who unwittingly buys fraudulent mortgage debt. "It's the consumer, because every mortgage lender has to factor in something to take care of their losses, whether those losses are from credit risk, fraud or any other source," Croft says.
If a mortgage broker or loan officer encourages you to falsify information on your loan application, or asks you to keep signature lines blank, walk away and report the incident to your state's office of consumer protection or bank regulation.
You can find your state's contact number by visiting StopMortgageFraud.com, clicking on "Report Abusive Lending" at the top right corner of the page, and typing your ZIP code in the box toward the bottom of that page.
Resources StopMortgageFraud.com
StopMortgageFraud.com
URL:
StopMortgageFraud.com
BankRate.com
BankRate.com
11811 U.S. Highway 1
North Palm Beach, FL 33408
Phone: 561-630-2400
Fax: 561-625-4540
Website:
www.bankrate.com
