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Major Initiatives Financial Institution Fraud Unit Mortgage Loan Fraud Identity Theft Counterfeit Check and Negotiable Instruments Debit and Credit Card Fraud Fast Track Cases Suspicious Activity Reports Task Forces and Working Groups Mortgage Lending

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major initiatives financial institution fraud unit
Major InitiativesFinancial Institution Fraud Unit
  • Mortgage Loan Fraud
  • Identity Theft
  • Counterfeit Check and

Negotiable Instruments

  • Debit and Credit Card Fraud
  • Fast Track Cases
  • Suspicious Activity Reports
  • Task Forces and Working Groups
mortgage lending
Mortgage Lending

The Mortgage Bankers Association estimates that in 2003 $3.8 Trillion in mortgage loans were generated.

mortgage fraud initiative
Mortgage Fraud Initiative
  • Sophisticated techniques
  • Data mining and analysis
  • Private industry cooperation
  • Other Governmental Agencies
      • Federal
      • State
      • Local
fbi mortgage fraud caseload
FBI Mortgage Fraud Caseload
  • 545 pending mortgage fraud cases as of 8/31/2004
  • 107% increase over two years ago.
states with significant mortgage fraud activity
MARI TOP TEN

Georgia

Nevada

Florida

South Carolina

Utah

California

Illinois

Colorado

Missouri

Michigan

Top Flipping States

California

Florida

Maryland

Ohio

Nevada

Arizona

Georgia

Illinois

Tennessee

Michigan

States with Significant Mortgage Fraud Activity
number of violations of nationwide mortgage related fraud sars fiscal years 2003 2004
Number of Violations of Nationwide Mortgage Related Fraud SARS Fiscal Years 2003 – 2004

Number of SARs received

Report Date: 9/23/04

dollar losses reported on nationwide mortgage related fraud sars fiscal years 2003 2004
Dollar Losses Reported on Nationwide Mortgage Related Fraud SARS Fiscal Years 2003 – 2004

Losses in Millions

In Millions

Report Date: 9/23/04

number of violations of houston mortgage related fraud sars fiscal years 2003 2004
Number of Violations of Houston Mortgage Related Fraud SARS Fiscal Years 2003 – 2004

Number of SARs received

Report Date: 9/23/04

dollar losses reported on houston mortgage related fraud sars fiscal years 2003 2004
Dollar Losses Reported on Houston Mortgage Related Fraud SARS Fiscal Years 2003 – 2004

Losses in Millions

In Millions

Report Date: 9/23/04

strategy
Strategy
  • Investigate, arrest and prosecute
  • Dismantle and disrupt organized criminal groups engaged in financial crimes
  • Foster partnerships and combine resources
    • Respond and assist local police
    • Use both formal Task Forces and Working Groups
  • Reallocate resources and personnel to better address trouble spots and maximize impact
  • Use technology to investigate more efficiently
strategy12
Strategy
  • Cooperate with the financial industry to identify and correct systemic weaknesses
  • Continue to pursue asset forfeiture and engage in asset sharing (many states have aggressive seizure laws)
  • Attempt to facilitate the passage of new and revised legislation
  • Provide training and education to both the private sector and law enforcement agencies domestically and abroad
  • Continue foreign initiatives in an attempt to engage organized groups in other districts
slide13

Mortgage Loan Fraud

“Crisis in the Making”

types of mortgage fraud
Types of Mortgage Fraud
  • Fraud for Housing
  • Fraud for Profit
types of fraud fraud for housing
Types of FraudFraud for Housing
  • Perpetrator is borrower
  • Involves single loan
  • Few misrepresentations
    • Income & property value may be altered
    • Down payment may be borrowed
    • Debt may be undisclosed
  • Borrower seeks housing and/or cash from loan
  • Borrower intends to repay
  • Industry professional sometimes involved
types of fraud fraud for profit
Types of FraudFraud for Profit
  • Often an industry professional
  • Involves multiple loan transactions and/or institutions
  • Includes many misrepresentations
  • Participants frequently paid for participation
  • Borrowers sometime unaware of scheme
typical fbi mortgage fraud cases
Typical FBI Mortgage Fraud Cases
  • More than likely fraud for profit
  • Multiple transactions
  • Multiple subjects
  • Large dollar losses
  • Systemic fraud in the mortgage industry
typical fraud schemes
TYPICAL FRAUD SCHEMES
  • Backward Application
  • Air Loans
  • Silent Second
  • Nominee Loans
  • Property “Flips”
slide19
MORTGAGE PROCESS

WHAT THEY RECEIVE*

Seller

Purchaser

Real Estate

(Developer)

(Borrower)

Broker

* Purchase

* Property and

* Commission

Price

Loan

on Loan

Mortgage

Escrow

Closing

Broker

Officer

Agent

* Commission

* Handling

* Settlement

on Loan

Fee

Fee

Funding

Mortgage

Mortgage

Lender

Servicer

Investor

* Origination

* Commission

* Interest

For Service

Fee

From Loan

Mortgage

Title

Property

Property

Insurer

Insurer

Insurer

Insurer

* Premium

* Premium

* Premium

* Appraisal

Fee

slide20

COMMON MISREPRESENTATIONS

MORTGAGE LOAN FRAUD

INCOME & EMPLOYMENT

  • 1. Income is overstated.
  • 2. Length of employment
  • is overstated.
  • 3. Fictitious employment
  • is reported.
  • 4. Employment is
    • backstopped by
    • co-conspirators.

OCCUPANCY

  • 1. Borrower intends to use
  • property for rental
  • income.
  • 2. Borrower is purchasing
  • property for another
  • party.
  • 3. Appraisals almost
    • always list the property
    • as owner occupied.
slide21

COMMON MISREPRESENTATIONS

MORTGAGE LOAN FRAUD

ASSETS AND COLLATERAL

  • 1. Assets are overstated.
  • 2. Collateral is overstated.
  • 3. Collateral is nonexistent
  • (forged promissory notes
    • and Land Contracts).
  • 4. Collateral is stolen or
    • counterfeit (fraudulent
    • money orders).

DEBT & CREDIT

  • 1. Borrower's debts are
  • not fully disclosed.
  • 2. Borrower's credit history
    • is not fully disclosed or
    • is altered.
  • 3. Borrower assumes the
    • SSAN# of another
    • person.
slide22

COMMON MISREPRESENTATIONS

MORTGAGE LOAN FRAUD

DOWN PAYMENT

  • 1. Down Payment does
  • not exist.
  • 2. Down Payment is
    • concealed in a non-
    • existent Land Contract.
  • 3. Down Payment is
    • borrowed and
    • disguised with a
    • fraudulent gift letter.

PROPERTY VALUE

Property value is inflated to:

1. Increase the sales value to make up for no down

payment.

2. Generate cash proceeds

in fraud for profit.

property flips
PROPERTY FLIPS
  • Rapid change of ownership.
  • Sharp increase in sales price.
  • Relationship between buyer & seller.
  • Inflated or fraudulent appraisals.
  • Strawbuyers used.
predatory lending
Predatory Lending

To intentionally trick or mislead individuals into borrowing funds that the borrower otherwise cannot afford or at substantially inflated rates.

it becomes predatory lending when
It Becomes Predatory Lending When ...
  • Charging unusually high interest rates or fees;
  • Lending exorbitant amounts to people who clearly lack the ability to repay;
  • Using fraudulent sales tactics;
  • Encouraging a borrower to payoff existing loans by taking out a more costly loan.
trends in mortgage fraud
Trends in Mortgage Fraud
  • Lower lending standards due to increased competition
  • More brokers originating loans
  • More legislation targeting predatory lending
  • Education of consumers
outsourcing
OUTSOURCING
  • Increased originations by mortgage brokers /third parties
  • Mortgage Brokers are estimated to originate 70% of all mortgages
  • 30,000 mortgage brokerages
  • 500,000 individual mortgage brokers and bankers.
increase in fraudulent activity
Increase in Fraudulent Activity
  • Increase in the number of Suspicious Activity Reports related to mortgage fraud
  • Increase in the Suspicious Activity Report dollar loss attributed to mortgage fraud
  • Increase in mortgage fraud violations reported to FBI.
emerging trends
Emerging Trends
  • Identity Theft and Mortgage Fraud
  • As of 6/04 the FBI had 61 cases open involving both mortgage fraud and identity theft.
  • Most common is appraisers.
reasons for increase in mortgage fraud
Reasons for Increase in Mortgage Fraud
  • Technology
    • Criminal groups have greater access to information to commit fraud
    • Proliferation of low cost/high quality computer & copying equipment
    • Emphasis on streamlined application and approval process
amico case
AMICO CASE
  • Father and Two Sons
  • Built 230 Homes in the Rochester NY Area Since 1992
  • December 2000 Charged With Defrauding Over 50 Financial Institutions
amico
AMICO
  • AMICO JR. Using False IDs
  • Previously Convicted Of Securities Fraud
  • Multi-Million Dollar Real Estate Deals in False Name
  • Homes for No Money Down and Rent to Own
amico34
AMICO
  • HOMES SOLD THROUGH:
    • Greedy Mortgage Brokers
    • Straw Borrowers
    • Corrupt Appraisers
    • Non-Existent Appraisers
    • Corrupt Closing Attorney
amico35
AMICO
  • FALSE DOCUMENTS INCLUDED:
    • W-2s
    • Tax Returns
    • Inflated Appraisals
    • Large Non-Existent Down Payments
    • Kick Backs to Borrowers
    • False Blue Prints
amico36
AMICO
  • 116 Count Indictment
  • 9 Subjects
  • $58 Million in Funding
  • 30%-40% of Funding Skimmed
  • 2/3 of the Homes Foreclosed
slide37
UNDERCOVER

OPERATIONS

CLEVELAND DIVISION

individuals identified
Loan officers

Appraisers

Accountants

Title companies

Real Estate Owners

Buyers/Borrowers

Company Owners

Employees of Underwriting companies

Individuals Identified

CLEVELAND DIVISION

individuals qualify
Individuals Qualify
  • With poor credit
  • No $$$$$$$$ down
  • LITTLE or NO monthly income

CLEVELAND DIVISION

undercover operation specifics
UNDERCOVER OPERATIONSpecifics
  • Investigative Techniques to be utilized:
    • Undercover scenarios
    • Sophisticated Techniques

CLEVELAND DIVISION

results
RESULTS
  • 23 Searches
  • 94 Indictments
    • Accountants -2
    • Borrowers – 35
    • Brokers - 40
    • Underwriters - 8
    • Appraisers – 5
    • Title Company employees - 4
slide42

Final Thoughts…

  • Rather fail with honor than succeed by fraud. (Socrates)
  • Crime pays or there would not be any crime. (G. Gordon Liddy)
  • The worst day at work is better than the best day in prison. (Unknown)
  • I didn’t do it. Nobody saw me do it. Can’t prove anything. (Bart Simpson)