Transcript Document
Latest Trends in Mortgage Fraud
Special Agent Eric Mascari
HUD Office of Inspector General
(317) 226-6303 Ext. 7438
Indianapolis, IN | July 23, 2013
Latest Trends in Mortgage Fraud
Introduction/Topics of Discussion
Changes in the Federal Housing Administration (FHA)
FHA Fraud Trends and Schemes
- Reverse Mortgages (HECM)
- Property Flipping
- Short Sales
- Deed Theft
-Loan Modification
Statutes
Case Examples
Questions and Answer
Changes in the
FHA
Latest Trends in Mortgage Fraud
FHA Changes
In the early 1990’s, FHA had about 15% of the home purchase
market
By 2006, FHA’s market share had been reduced to 3% of all loans
nationwide
Currently, FHA’s market share is in excess of 30%
Current Single Family Loan Limit in Marion County is $271,050.00
Latest Trends in Mortgage Fraud
FHA by the #’s
2007 – 580,813 FHA Loans
2008 – 1,467,252 FHA Loans
2009 – 2,022,250 FHA Loans
2010 – 1,623,934 FHA Loans
2011 – 1,150,724 FHA Loans
2012 – 1,239,874 FHA Loans
Latest Trends in Mortgage Fraud
FHA Loan Volume 2006 -2012
Latest Trends in Mortgage Fraud
Latest Trends in Mortgage Fraud
FHA may need $943-million bailout
(Chicago Tribune 4/10/13)
The Obama administration's proposed budget projects that the FHA would need a
$943-million bailout this year to stabilize its shaky long-term finances.
As banks pulled back on lending during the recession, the Federal Housing Administration's
role in the market expanded. Now its long-term finances are being dragged down by bad loans
it backed from 2007 to 2009. Above, a foreclosure sign at a bank-owned home for sale in Las
Vegas in 2010. (Robyn Beck, AFP/Getty Images / November 8, 2010)
Reverse Mortgage
(HECM)
Latest Trends in Mortgage Fraud
Reverse Mortgage
People over 62 convert portion of their equity into cash
or line of credit. Credit & Employment are non-issues
No repayment until the borrower no longer uses the
home as their principal residence
HECM can also be used to purchase primary residence
Maximum Insurance amounts exceed $600,000
depending on locality
HUD has insured over 395,000 HECM Loans since 2008
Latest Trends in Mortgage Fraud
HECM Frauds - False Mortgage Payoff
• Subject creates a fake mortgage company and “lends”
funds to the borrower (No $ changes hands but the
paper is filed with the County Recorder)
• The Subject refinances the borrower into a HECM. At
closing the title company pays all debts up to and
including the fake mortgage.
-Subject may file subordinate mortgages,
Promissory Notes, and other paperwork to create
the illusion that the borrower owes money
Latest Trends in Mortgage Fraud
HECM Fraud Annuity
• Financial Professionals fraudulently convince HECM borrowers
to invest proceeds in a financial product, such as an annuity
• The financial professionals receive increased fees and divert
mortgage pay outs from the HECM proceeds
Latest Trends in Mortgage Fraud
HECM Fraud – Unauthorized Recipient
Individual, often family members, may keep HECM
payments after the authorized recipient dies or
permanently leaves the residence, i.e. Nursing Home
or Assisted Living
Home Flipping
Schemes
Latest Trends in Mortgage Fraud
Property Flipping, Continued
The policy change will permit buyers to use FHA-Insured
financing to purchase HUD owned properties, bank owned
properties, or properties resold through private sales. This will
allow homes to resell as quickly as possible, helping to stabilize
real estate prices and to revitalize neighborhoods and
communities.
“FHA borrowers, because of the restrictions we are now lifting
have been shut out from buying affordable properties” said FHA
Commissioner David H. Stevens. “This action will enable our
borrowers, especially first-time home buyers, to take advantage
of this opportunity.”
Waiver was recently extended until 2014
Latest Trends in Mortgage Fraud
Property Flipping
From HUD Secretary Shaun Donovan “this change in policy is
temporary and will have strict conditions and guidelines to assure that
predatory practices are not allowed”
In today’s market, FHA research finds that acquiring, rehabilitating and
the reselling of these properties to prospective homeowners often
takes less than 90 days. Prohibiting the use of FHA Mortgage
Insurance for a subsequent resale within 90 days of acquisition
adversely impacts the willingness of sellers to allow contracts from
potential FHA buyers because they must consider holding costs and
the risk of vandalism associated with allowing a property to sit vacant
for a 90-day period of time.
Latest Trends in Mortgage Fraud
Property Flipping, Continued
Investor buys & sells property on same day or shortly
thereafter
Second sale had questionable appraisal/s
Second buyer prepares false documents in order to
qualify for mortgage loan
Second sale immediately goes into default
Creates a artificial market/high property taxes/losses
to the Government and the lender
Latest Trends in Mortgage Fraud
Appraisal
Fraud
Latest Trends in Mortgage Fraud
Appraisal Fraud
Appraiser does not look at previous sales
Comparables are used for multiple files
Figures are backed into contract price
Pictures vary widely from comparables
House appraised “as is” when contingent upon stipulations
Appraising house you own by hiding ownership interests
Appraiser ID Theft
Short Sale
Fraud
Latest Trends in Mortgage Fraud
Short Sale Fraud
Investor Purchases property from bank at a lower
price while new buyer is recruited
Many of the offers are “low balled”
Seller/Buyer/All Parties to the transaction
fraudulently advise lender:
Sale is “Arm’s Length”
No Hidden Agreements Involved
No Party will received proceeds except as set forth on the
HUD-1
Latest Trends in Mortgage Fraud
Short Sale Fraud
Fraudster will find an end buyer
Double closing is possible, i.e. (A to (B) to C)
Broker Price Opinion (BPO) is influenced to yield a
lower value
Lender is defrauded into accepting an artificially
“LOW” price on the property
Warranty
Deed Theft
Latest Trends in Mortgage Fraud
Warranty Deed Theft
Property researched to ensure vacancy
In many cases, the property is in foreclosure or near
foreclosure
Property has warranty deed recorded, which
indicates the property is in receivership
Property transferred to an individual through a
second warranty deed
Latest Trends in Mortgage Fraud
Warranty Deed Theft Schemes
Cash out refinance (HELOC)
Subsequent sale to straw borrower
Section 8 Rental
Conventional/Market Rate Rental
Security Deposit Collection
Earnest Money Deposit Collection
Loan
Modifications
Latest Trends in Mortgage Fraud
Loan Modification Red Flags
99% Success Rate
Charging fees up front
Money Back Guarantee
Attorney Based Legal Team
Federal and
State Mortgage
Statutes
Latest Trends in Mortgage Fraud
Federal Statutes
18 USC 1010, False Statements to HUD (Felony)
18 USC 1012, False Statements to HUD (Misdemeanor)
18 USC 1341, Mail Fraud
18 USC 1343, Wire Fraud
18 USC 1344, Bank Fraud
18 USC 1014, Loan Fraud (Statute is now 10 years)
Latest Trends in Mortgage Fraud
Indiana State Statutes
IC 35-43-5-8, Fraud on a Financial Institution
Class C Felony
IC 35-43-4, Theft
Class C Felony
IC 35-43-5-2 Forgery
Class C Felony
Latest Trends in Mortgage Fraud
Questions??
HUD OIG WEBSITE
www.hudoig.gov