Transcript Slide 1

The Changing Face of Mortgage
Fraud in Florida
Chris Hancock, CFE
Florida Office of Financial Regulation
Bureau of Financial Investigations
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Central Florida Condo Development
Average Sales Price in 2008 $325,000
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Central Florida Condo Development
Average Sales Price in 2009 $65,000
21st Annual ECI Conference
“Traditional” Mortgage Fraud
• Misrepresentations made to lender to obtain
loan - typically regarding income, assets,
employment and use of property.
• Inflated appraisals.
• Property flips.
• Straw buyers.
• Builder bailouts.
• Condo conversions.
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Mortgage Fraud Trends
• Majority of Florida OFR cases of fraud
involving initial mortgage loans are historic,
actual fraud occurred two plus years ago
(reporting lag & investigative response lag).
• Geographic shift in fraud to those states with
high foreclosure rates to take advantage of
high numbers of distressed borrowers,
foreclosed properties and short sale
opportunities.
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Mortgage Fraud Trends
70
60
50
40
SAR's Filed (X1000)
30
% Current
20
10
0
2003/4
2004/5
2005/6
2006/7
2007/8
• SAR filings by depository institutions related to
mortgage fraud are up but those reporting current
fraud are down (Source FinCEN).
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Preying on the Desperate
– Targeting distressed borrowers unable or unwilling
to make payments.
– Foreclosure Rescue
• Homeowner sells home with an agreement to rent back
until market and/or borrower’s credit improves. Buyer
promises to sell home back to original owner.
– Loan Modification Companies
• Purported re-negotiation of existing mortgages
• Upfront fees and schemes to strip equity.
– Short Sales – use of straw buyers.
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Seniors at Greater Risk?
• Increased targeting of senior citizens, especially those whose
wealth has fallen due to the decline in financial markets.
• Reverse Mortgages, officially known as Home Equity
Conversion Mortgages (HECM). Allow homeowners, typically
62 years of age or older, to access the equity in their home.
Repayment comes from the eventual sale of the property.
• According to HUD, HECM FHA insured loan originations
increased 1,300% from FY 1999 to FY 2008.
• Ripe for fraud and abuse of this vulnerable population.
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Responses
Investigative
Legislative/Regulatory
Industry
Consumer Education
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Investigative – Multi-Agency
• Federal/State/Local Law Enforcement Mortgage Fraud Task
Forces and Initiatives.
– Financial Fraud Enforcement Task Force.
– Miami-Dade County Mortgage Fraud Task Force.
• Middle District of Florida USAO Mortgage Fraud Surge
– More than 100 defendants indicted relating to $400 million in loans
allegedly procured by fraud involving more than 700 properties
(November 2009).
• Operation Stolen Dreams
– Nationwide multi-agency effort coordinated by the Financial Fraud
Enforcement Task Force.
– Miami Area - 86 arrests involving $76 million in mortgage fraud (June
2010).
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Federal Legislative/Regulatory
• Secure and Fair Enforcement for Mortgage Licensing Act 2009
(SAFE).
• SAFE strongly encourages all states to participate in
Nationwide Mortgage Licensing System (NMLS) for the
residential mortgage industry. Intent to improve flow of info
between state regulators, increase accountability of
brokers/lenders and assist consumers. Partial go-live earlier
this month.
• Appraisers Home Valuation Code of Conduct modified in May
2009 requires use of Appraisal Management Companies to
reduce pressure on appraisers from lenders and brokers to
inflate property values.
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Federal Legislative/Regulatory
• Fraud Enforcement Recovery Act 2009
– Mortgage lending businesses now defined as financial
institutions for the purposes of bank fraud.
– Maximum prison sentences for wire fraud/mail fraud
affecting financial institutions increased to 30 years.
• Dodd-Frank Wall Street Reform and Consumer Protection Act
2010
– Regulations to be established requiring issuer of an assetbacked security (including certain residential mortgages) to
retain some of the credit risk.
– Establishment of a Consumer Financial Protection Bureau
with authority to implement rules regarding mortgages
and many other consumer financial products.
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Florida Legislative Changes
– Since January 2010, loan originators need to be licensed to
modify existing mortgage loans and upfront fees are
prohibited.
– Beginning this month, loan originators and lenders are
required to renew license on yearly basis (includes criminal
background checks and credit reports).
– Easier for the OFR to deny or revoke mortgage licenses for
certain convictions and even for pending prosecutions
under certain circumstances.
– Unfair, deceptive, or misleading advertising is a specific
violation.
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Industry and Consumer Awareness
• Industry
– Improved broker and lender due diligence.
– Stricter borrower requirements.
– Fewer “exotic” loan products and “low doc” “no doc”
(“liar”) loans.
– Increased resources committed to loan workouts.
• Consumer Education
– Legislators, regulatory agencies and consumer protection
groups conducting public outreach and holding workshops
and town hall meetings for borrowers.
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