This Is Almost Enough To Move The 'Mortgage Mess' Up In Our Annual Rankings

Yesterday, we chose the “Mortgage Mess” as the 8^th most significant Financial Fraud Law issue of 2009. Today, Kevin L. Perkins, the FBI’s Assistant Director, Criminal Investigative Division, testified before the Senate Judicial Committee about the FBI’s efforts to combat significant financial crimes. Perkins highlighted mortgage fraud, which has made us think a bit about moving it up in our rankings. In any event, here’s a bit of what Perkins had to say: 

“Mortgage fraud continues to pose a significant threat to lenders, investors, residential real estate values, and the U.S. economy. The FBI delineates mortgage fraud into two distinct areas: 1) fraud for profit; and 2) fraud for housing. Fraud for profit generally employs schemes to remove equity, falsely inflate the value of the property, or issue loans relating to fictitious properties.  Many of the fraud for profit schemes rely on “industry insiders” who override lender controls. The FBI defines industry insiders as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.
 
“Fraud for housing, on the other hand, represents illegal actions perpetrated by borrowers, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a residence under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the income or employment history to qualify for a loan, which the borrower would otherwise not qualify for. Although generally not as sophisticated as fraud for profit schemes, fraud for housing has played a large role in the decline of residential real estate values since unqualified buyers defaulted on loans they would otherwise not have obtained but for their fraud.
 
“The FBI compiles data on mortgage fraud through suspicious activity reports  filed by financial institutions through the Financial Crimes Enforcement Network (FinCEN), and through reports generated by the Department of Housing and Urban Development (HUD) Office of Inspector General (OIG). The FBI also receives and shares information pertaining to mortgage fraud through its national and regional working groups, as well as complaints from the industry at large.”
 
Perkins also said:
 
“In addition to tripling the number of FBI special agents who investigate mortgage fraud cases in the field, the FBI has implemented a number of innovative and proactive methods to detect and combat mortgage fraud and other significant financial frauds. Foremost is the development of the Financial Intelligence Center (FIC). The FIC was established on September 14, 2009 with resources appropriated by Congress, through H.R. 2346, Supplemental Appropriations Act, to the FBI to investigate mortgage fraud, predatory lending, market manipulation, and other financial frauds. The FIC is currently staffed with one supervisory intelligence analyst, eight staff operations specialists, and six intelligence analysts. In FY 2010, the FIC should be fully operational with a total staffing level of 58. The FIC’s mission is to provide tactical analysis of intelligence data, data sets, and databases by using evolving technology and data exploitation techniques to create targeting packages to identify the most egregious criminal offenders and to enhance current criminal investigations. In addition, the FIC responds to requests by FBI field offices to complement the field’s resources to identify emerging economic threats. The FIC also provides training to the field to assist with identifying the most egregious criminal enterprises.
 
“The Department of Justice’s Criminal Division is initiating a mortgage fraud initiative that will utilize, among other tools, the FIC’s analysis in the prosecution of its cases. Another proactive approach was the development of an analytical computer application to identify property flipping transactions, first developed by the FBI’s Washington Field Office, to effectively identify property flipping in the Baltimore and Washington areas. The original concept has evolved into a national FBI initiative, which employs statistical correlations and other advanced computer technology, to search for companies and persons demonstrating patterns of alleged illegal property flipping. As potential targets are analyzed and flagged, the information is provided to the respective FBI field office for further assessment. Illegal property flipping is described as purchasing properties and artificially inflating their values through false appraisals. The artificially valued properties are then sold to an associate of the “flipper” at a substantially inflated price. Quite often the property is “flipped” within 30 days, but sometimes the “flip” occurs on the same day as the original purchase. Typically, illegally flipped properties go into foreclosure and are ultimately repurchased for a fraction of their original value.
 
“Other methods employed by the FBI include sophisticated investigative techniques such as undercover operations. These investigative measures not only result in the collection of valuable evidence, but also provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing losses to individuals and financial institutions.
 
“In December, 2008, the FBI dedicated resources to create the National Mortgage Fraud Team (NMFT), at FBI Headquarters in Washington, D.C. The NMFT, which has responsibility for management of the FBI’s Mortgage Fraud Program, serves as a veritable fusion center. Through program guidance, oversight, training, and information sharing, the NMFT provides the tools necessary to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and ensure that mortgage fraud efforts are both threat-based and intelligence driven.”
 
Maybe mortgage fraud will move up in next year’s rankings.