In a previous post, we introduced the topic of mortgage fraud and some of its players.  In this second article of the seven part series, we’ll introduce the first of several scenarios in which fraudulent transactions manifest.

The “Flip.” While not illegal on their face, “flip” closings have been blamed for a number of mortgage fraud transactions in which the title company was allegedly complicit, resulting in fines in the millions of dollars against various title companies throughout the United States, levied both by the Department of Housing and Urban Development and the respective States’ Department of Insurance.

There is hardly a more pervasive problem in lending than of mortgage fraud.  It always involves a conspiracy between a loan originator and an appraiser. Additional conspirators can include a buyer’s broker (who may also be the mortgage broker), a title company, and the seller’s real estate agent. An overlooked conspirator could be the secondary market who is encouraging loan originators to make loans as fast as possible, so the loans can be purchased in the secondary market (even though they are the “victims” who sue!). Since the vast majority of these loans are packaged, processed, and sold based on credit scores and tax returns, most of them are sold with very little due diligence as to the quality of the borrower.

Nine people were arrested in Houston yesterday for loan fraud. There are roughly six schemes we've been able to define. This one involved phony appraisals and loan apps., and overpriced mobile homes. I just got notice of another indictment a few minutes ago of a sales agent who sold several units to one buyer, allegedly tied to a New Orleans (Katrina refugee) with false loan information. I was also consulted on a listing broker who was indicted in another State for "turning a blind eye" to a real estate fraud involving her client/seller who sold their property to"?a buyer who was engaged in a loan fraud transaction.

Apparently the FBI is now geared up to start prosecuting in"?a big way.

I think the mortgage industry brought this on themselves by extremely sloppy approval and due diligence procedures. What do you think? Lets blog.