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Freddie Mac releases Asian-American guidebooks

National Mortgage Professional
Mar 04, 2007

A little bit of fraudJerome Maynefraud When a company or the authorities begin an investigation into suspected fraud and misrepresentation, they usually start by reviewing documents. One of the best ways to find out whether or not someone misrepresented or withheld information on a loan application is to compare the information contained in the lender's mortgage loan file with information contained in, let's say, the title agent's file or the real estate file. From there, the investigators assemble their theories; they develop a list of questions for which they need answers. Oftentimes, to find the answers to these questions, they will begin interviews. The list of interviewees often includes loan officers, wholesale lender representatives, appraisers, processors, underwriters, real estate agents, title/closing agents, borrowers and co-workers. Average Joes - the people who never set out to commit fraud, misrepresent themselves or profit from misdeeds - can be brought into an investigation. The investigators draw lines from the primary party being investigated (let's just say, in this example, the loan officer) to the other parties and vendors. They extract common denominators and continue from there. For example, let's say it's been discovered by Bobby Broker that several loans originated by his loan officer, Slick Rick, have had first or early payment defaults. Before tipping off Slick, Bobby decides to audit Slicks files. Bobby notices that many of the files contain different versions of the same purchase agreement, multiple HUD-1s, the same landlord for different files and different borrowers, and other coincidences. He also notices that Slick uses a variety of vendors, but on the files in question, he used the same lender, appraiser, real estate agent and closer. Bobby contacts the branch manager for the lender and the owners of the appraisal, real estate and title companies. He shares his findings. These respective managers and owners agree to review their employees' files. The lender finds that its representative in question uses the same closer/title company on the majority of his loans - even loans received from loan officers other than Slick. Additionally, the branch manager uncovers identical coincidences in the representative in question's other files. Then, the manager contacts those subsequent managers and owners to assist in the investigation. As you can see, this web continues to become more and more tangled. Loan officers, appraisers and closers can - and do - fall under suspicion for simply being one of the vendors involved in one or two transactions. Guilt by association is very real. This could be you. My knowledge of this process comes from investigations and interviews I have conducted while rooting out fraud, dozens of stories that I've heard from professionals in the real estate and finance industry, and my experience as an insider who committed fraud and was the subject of an investigation myself. The result of the investigation of which I was the subject was prison. Investigating fraud is a very difficult job. The investigators need to figure out who the people are that have information pertinent to their investigation. Once these people are identified, the investigators need to figure out which of these individuals will actually cooperate, tell the truth and provide useful information. The investigator also has to give proper credence to the perspective of the interviewee. Information obtained during the course of an interview may be accurate or inaccurate, as a result of the interviewee fabricating information or lying. Rather, the information relayed by the interviewee is his perspective on the truth. In the late '90s, I was indicted for my involvement in a conspiracy to commit mail fraud, wire fraud and money laundering - a fancy way of saying "mortgage fraud." I was the loan officer who took the loan applications, and received and procured the documentation necessary to get the borrowers approved. The borrowers were straw buyers. Their role was to get a loan to purchase, at an inflated value, a property being sold by a flipper. After I was indicted, I was given the opportunity to review volumes of interviews conducted by the FBI with the straw buyers. The general consensus of the buyers was that during the nine months of this fraud scam, I knew absolutely everything that was going on. I admitted at my guilty plea hearing - and I still admit todaythat I was involved in a conspiracy to commit fraud; I was guilty of that. However, in reality, the extent to which I knew everything was less than that believed by the borrowers - a fact that I later found out was irrelevant. However, this shocked and angered me at the time. During my pretrial, I had the opportunity to review volumes of interviews and nine months worth of mortgage loan files, as well as files from the title company/closers. I uncovered a lot of information that I had not previously known. Years later, it hit me. From the perspective of the straw buyers, I did know everything. Why would they have thought otherwise? During the nine-month scam, they were given instructions to make an appointment with me to fill out a loan application. From there, for the most part, the "investor" (the mastermind of the operation), his associates and myself handled the lion's share of the documentation. What did they know? What was their perspective? They knew that they were going to get $5,000, if they got approved for a loan and purchased a home from the flipper. They probably knew this was illegal or at least not quite on the up and up. At this point, I think they assumed that everyone involved in their loan process - everyone else they came in contact with - was part of this thing that was not on the up and up. This would include my processor, the appraiser, the closer and myself. If there was a real estate agent involved, I'm sure it was believed by the straw buyers that he was in on it, too. So what did I learn from this? Being involved a little or a lot is irrelevant to the authorities. Fraud and misrepresentation is fraud and misrepresentation, regardless of the level of one's involvement. Failure to act on knowledge of illegal activity is tantamount to fraud, even if you think everyone does it or you've seen other people do it. If you're involved in something uncomfortable, sneaky or suspicious, talk to somebody. Ask questions of the other parties involved in the transaction. If you feel that people are not being upfront with you, stop working with them. If they're doing something illegal, turn them in. Even if you think you would have a great defense and you know for a fact that you, yourself, are not doing anything wrong, your reputation and career will still be ruined if you don't act on illegal or suspicious activity in which you are involved. When I first started working with that group of who would later become my co-defendants, I merely suspected impropriety. From there, it snowballed. I justified not acting on suspicions, which made it easier to later justify, allow and participate in blatant fraud and misrepresentation. You have to be diligent. You cannot turn your head just once. Fraud just once is still fraud. If you lie down with Slick, you are Slick. In my case, it didn't matter how right the straw buyers were. One cant be a little bit pregnant and one cant be a little bit in prison. Jerome Mayne is president of Fraudcon Inc. He is a consultant, speaker and self-taught expert in fraudulent behavior. He is also the author of the book, "Life Saving Lessons: The Diary of a White-Collar Criminal." He may be reached at (612) 919-3007 or e-mail [email protected]
Published
Mar 04, 2007
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