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					Title:
What Is Mortgage Fraud For Profit?

Word Count:
777

Summary:
If you are having a hard time paying your mortgage, you may be contacted
by unscrupulous individuals offering to help. Beware.


Keywords:
mortgage, house, fraud, buyer, straw buyer, scheme, credit, profit,
mortgage fraud, mortgage fraud profit, fraud profit, foreclosure


Article Body:
The Story:
In 2007, Sally was having trouble keeping up with her mortgage payments,
and by September, she received a foreclosure notice in the mail. A few
days later, she was called by a man who said he could help. He said she
could have a check for $40,000 to help pay her bills, and she wouldn’t
have to worry about foreclosure any more. Sally signed papers in late
October at a title company in Maryland. She went home with a $40,000
check and started making her new house payments to District Properties in
December. Nine months later, Sally started having trouble making her
house payments again. This time, instead of a foreclosure letter, she
received an eviction letter in the mail. Sally gradually realized that
she no longer owned her home; she was simply a renter. In a panic, Sally
called District Properties. The man who answered the phone told her that
Subprime Mortgage Co. held two loans against the house, one for $264,000
and one for $66,000, but she could buy her house back for $360,000 –
three times the mortgage she had a year earlier. Sally’s income and
credit were not good enough to buy her house at that price. The man said,
“I’m sorry” and hung up.

The Profile:
Like hundreds of District residents, Sally became a victim of mortgage
fraud for profit, sometimes called “equity skimming.” The scheme she fell
victim to was orchestrated by a variety of people, including a mortgage
broker, real estate agent, appraiser, “investor,” “straw buyer,” and
“bird dog.” Each person in the scheme received a portion of the equity in
Sally’s house. In the end, Sally lost her house, Subprime Mortgage Co.
foreclosed, and the group that orchestrated the fraud made more than
$100,000.

This fraud is different from predatory lending, in part because Sally
never made a loan. Predatory lending typically involves a single loan
with extremely high fees and a high interest rate made to a homeowner or
legitimate purchaser. Mortgage fraud for profit is typically a more
complex scheme involving an inflated appraisal, falsified loan
applications, equity skimming, property flipping, and sometimes identity
theft. The borrower is typically a straw buyer, who never intends to
occupy the house. The mortgage payment is paid by the investor, or a
company controlled by the investor. Eventually, the investor stops making
mortgage payments, forcing the lender to foreclose, or sells (“flips”)
the house for additional profit.

In a typical mortgage fraud for profit scheme, a bird dog looks for
distressed houses by checking public real estate records and driving
around targeted neighborhoods. When a house is identified, the bird dog
reports the address to the investor and receives $1,000 or so for the
service. A straw buyer, who is a person with good credit or a falsely
inflated credit score, poses as a buyer. In some cases, a straw buyer is
a stolen identity; the person whose name is stolen may discover the theft
when credit is denied or the purchase appears on a credit report. In some
cases, a straw buyer is a participant in the scheme – a professional
straw buyer. In many cases, however, a straw buyer is a person who hears
by word of mouth through family, friends or co-workers that someone will
pay $5,000 to $10,000 for the use of his or her name. As with most
financial arrangements that seem too good to be true, a one-time straw
buyer often finds that things do go wrong: his credit may be ruined
because the mortgages are not paid, he may be investigated by law-
enforcement for fraud, or he may be charged with conspiracy.

In addition to bird dogs and straw buyers, a mortgage broker and
appraiser are important participants in a mortgage fraud for profit.
Usually, both are active participants in the scheme and receive money for
falsifying documents. Other industry professionals who play an important
role are employees of a title company who create closing documents and
disburse funds after a sale is completed. Professionals who have access
to credit report databases or software that generates W-2 forms and pay
stubs also participate in the scheme. As reported in the 2006 FBI
Financial Crimes Report, 80 percent of all reported mortgage fraud losses
involve industry insiders. Perhaps this is why mortgage fraud for profit
has become so prevalent throughout the country. A homeowner facing
foreclosure is easily convinced by a professional mortgage broker, for
example, that he should sign contracts that convey his house to someone
else. People tend to trust professionals in the financial industry. This
is one of the reasons that government regulations requiring financial
industry professionals to maintain specific standards are so crucial for
the protection of consumers.

				
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