Fraud is running rampant in the nation's mortgage industry, with nearly three times as many reports of suspicious activity this year as compared with 2001, according to FBI Criminal Investigative Division Assistant Director Chris Swecker. On Sept. 17, the FBI announced action against 205 individuals in the largest nationwide enforcement operation in FBI history directed at organized groups and individuals engaged in financial institution fraud.
"Mortgage fraud really took off a couple of years ago when interest rates began dropping and there was a run on refinancings," said Swecker. "The problem continues to escalate, but we're working to get out in front of it. By its nature, mortgage fraud needs insider involvement, so we're finding that undercover operations are highly effective. We're also working with all the industry's professionals mortgage brokers, real estate agents, accountants, appraisers, loan officers and title companies who are as anxious as us to weed out the bad seeds."
Through the first nine months of 2004, mortgage companies have reported more than 12,100 instances of suspicious activity as compared with only 4,220 in 2001. Currently, there are 533 pending mortgage fraud investigations, as compared to 102 in 2001. The FBI has identified several "hotspots" around the country where fraud is especially prevalent, including California, Florida, Illinois, Michigan, Missouri and Nevada.
Robert M. Crouch, chair of the Mortgage Bankers Association, said the association has a Fraud Task Force working with the FBI.
"Our lenders have seen an increase in the number of fraudulent schemes over the last several years committed against them," said Crouch. "It has cost the mortgage industry and other financial service providers billions of dollars."
According to Swecker, the FBI's ongoing initiative against fraudulent activity, known as Operation Continued Action, "reflects the FBI's mission and effort to identify, target, disrupt and dismantle criminal organizations and individual operations engaged in fraud schemes that target our nation's financial institutions."
Operation Continued Action is targeting a variety of fraud schemes, including mortgage and loan fraud, insider fraud, financial institution failure investigations, identity theft, check fraud and check kiting. This initiative involved the coordination of 47 FBI Field Offices, the Criminal Division of the Department of Justice, participating United States Attorneys Offices, federal, state and local law enforcement agencies and financial institution regulatory agencies that work with the FBI combating financial institution fraud. From its inception in August 2004, Operation Continued Action investigators have identified more than 245 subjects in 158 investigations. More than 151 indictments and complaints have been filed, leading to more than 144 arrests, convictions, sentences and millions of dollars in forfeiture and restitution. From 2000 to the present, the FBI's investigations in the financial institution fraud arena have resulted in more than 11,466 indictments, 11,362 convictions and approximately $8.1 billion in restitution orders.
While the FBI is the primary law enforcement agency protecting the nation's financial institutions from fraud, the U.S. Department of Housing and Urban Development is also seeking to keep American homebuyers safe from real estate fraud. HUD is proposing that crooked real estate brokers be barred from selling foreclosed single-family houses. The proposed rule would allow for the quick removal of brokers if HUD determines they participated in property flipping, inflated appraisals and fraudulent underwriting schemes. Real estate brokers can be removed from HUD's qualified selling broker list for making false and misleading statements and for operation without a state license. Similar administrative removal procedures are in place for FHA appraisers, consultants and non-profit groups.