Mortgage Fraud Surges Since 2001, FBI Reports

Fraud is running rampant in the nation’s mortgage industry, with nearly three times as many reports of suspicious activity so far this year compared with 2001, a top FBI official said Friday.

“It has the potential to be an epidemic,” said Chris Swecker, FBI assistant director for criminal investigations.

Through the first nine months of 2004, mortgage companies and banks have reported more than 12,100 instances of suspicious activity compared with only 4,220 in 2001. The FBI has 533 pending mortgage fraud investigations, compared with 102 in 2001.

Law enforcement officials say the lending and refinancing boom that accompanied record low interest rates in the last few years is a key reason for the increased fraud. The FBI has identified several “hot spots” around the country where fraud is especially prevalent, including Florida, California, Nevada, Michigan, Missouri and Illinois.

“You can find this anywhere in the country,” Swecker told reporters.

Robert M. Crouch, chairman of the Mortgage Bankers Assn., said the industry has a Fraud Task Force working with the FBI to “expose these criminals and bring them to justice.”

“Our lenders have seen an increase in the number and variety of fraudulent schemes over the last several years committed against them,” Crouch said.

One common mortgage fraud scheme is “property flipping,” in which property is purchased, appraised fraudulently at a much higher price and then quickly sold. The mortgage holder is then left with property worth much less than the loan it issued.

Other schemes involve fake identities and credit histories, use of “straw buyers” to conceal the true buyer’s name and forged loan documents.

According to the FBI, more than 151 charges since early August in cases with potential losses to banks and other businesses of an estimated $3 billion.