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MORTGAGE FRAUD

MORTGAGE FRAUD. Presented by: US Postal Inspection Service – Steven E. Sultan J.P. Morgan Chase – John Devereux October 24, 2008. Mortgage Fraud Overview Industry Fraud Statistics. FinCen - number of mortgage fraud related SARS ( report date: 04/08; through Q4 of 2007).

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MORTGAGE FRAUD

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  1. MORTGAGE FRAUD Presented by: US Postal Inspection Service – Steven E. Sultan J.P. Morgan Chase – John Devereux October 24, 2008

  2. Mortgage Fraud OverviewIndustry Fraud Statistics • FinCen - number of mortgage fraud related SARS (report date: 04/08; through Q4 of 2007)

  3. Mortgage Fraud OverviewApproval Window • Auto Finance Industry • Highly competitive environment • multiple lender options • Approval usually occurs within hours • Auto approval • Small Business Loans • Usually approved within days • Credit Lines significantly higher • Home Mortgages/ Equity Lines of Credit • Weeks/Months • Regulation B

  4. Mortgage Fraud OverviewInternal Threat • Industry insiders account for 80% of the fraud • (Industry professionals believe it is higher) • Who are the potential suspects? • Borrower • Seller • Settlement Agency • Correspondent Lender • Loan Officer (Insider) • Appraisers • Real estate brokers • Underwriters • Attorneys • Numerous loan products • Product manipulation • Investigative preparation • Performance Level • Who taught you?

  5. Mortgage Fraud OverviewInternal Threat

  6. Mortgage Fraud OverviewSAR Data

  7. Mortgage Fraud OverviewSAR Data

  8. Mortgage Fraud OverviewSAR Data

  9. Mortgage Fraud OverviewSAR Data

  10. Mortgage Fraud OverviewFraud Types • Collateral Fraud • Flipping • Churning • Straw Buyer • Incentive Fraud • Real Estate Investment Fraud • SS Fraud • Check Kiting • Account Takeover • True Name Fraud/Identity Fraud • Occupancy Fraud

  11. On the Internet The following was posted on a well known mortgage brokers message board: Need credit investors with FICO over 720 $20,000.00 per transaction I am looking for credit investors: Here is the skinny… I am purchasing properties at under 60% LTV, need credit investors to secure properties for flipping. Owner of credit is given $10,000.00 in the front, and 6-months later another $10,000.00 at sale. This is per transaction.Have one ready now that pays $15,000.00 front and back.Please call Kristy XXX.XXX.XXXXPS. Bonus paid for the referrals as well.

  12. Federal Bureau Of Investigation Mortgage Fraud Report (April 2008) The above photos depict condos that were involved in a mortgage fraud. The appraisal described “recently renovated condominiums” to include Brazilian hardwood, granite countertops, and a value of $275,000.

  13. Chunking Often a variation on flipping, chunking schemes often begin with seminars or programs that purportedly show unsophisticated borrowers how to get rich by investing in rental properties. Once hooked, multiple owner occupied loan applications are submitted to different lenders without disclosure of any of the other loans in process.

  14. Mortgage Fraud OverviewRegions Affected • Most Predominant Geographic Regions for Pre-Funding Fraud 2007 2008 % Volume • Florida 26% 20% 6% • California 11% 12% 8% • Michigan 9% 7% 4% • Illinois 7% 8% 7% • Georgia 8% 7% 3% • New York 6% 5% 6% • Texas 4% 5% 11%

  15. Mortgage Fraud Overview Fraud Findings The most frequently noted fraud issues are: YTD 20072008 Income / Employment 51% 49% Credit 19% 26% Occupancy 16% 24% Collateral 15% 17% Asset 14% 9%

  16. Mortgage Fraud OverviewCurrent issues • Increased Fraud with Downturn in Volume. • More time on the front end to identify red flags and detect fraud. • Quality is diminished by the need for volume. • Decreasing volume causes: • Increased pressure on loan officers, brokers and correspondents to boost production to meet sales goals. • Increased pressure on appraisers to meet the sales prices. • Increased pressure on underwriters to make exceptions. • More Frequent and More Sophisticated Fraud Schemes. • Perpetrators are getting smarter. Schemes are becoming complex and are more difficult to detect. • Organized crime beginning to enter the picture.

  17. Mortgage Fraud OverviewOrganized Ring Activity

  18. Mortgage Fraud OverviewOrganized Ring Activity

  19. Mortgage Fraud OverviewOrganized Ring Activity

  20. Mortgage Fraud OverviewOrganized Ring Activity

  21. Arrested

  22. Sources for Complete Mortgage Fraud News Mortgage Fraud Blog: www.mortgagefraud.org Mortgage Fraud Blog: www.mortgagefraudblog.com Avoiding Mortgage Fraud: www.frediemac.com/avoidfraud/ MBA Mortgage Fraud Resource Center: www.mortgagebankers.com/MBAfightsfraud/

  23. Mortgage Fraud OverviewQuestions

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