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Mortgage Fraud Study

Mortgage Fraud Study

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Published by Carrieonic

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Published by: Carrieonic on May 17, 2009
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Mortgage Bankers Association
© Mortgage Bankers Association 2007. All Right Reserved.
Executive Summary
Mortgage raud is a large and growing problem and warrants signiicant attention. The mortgage lendingindustry has lost billions o dollars as a result o raud, and the sum is believed to have risen steadily inrecent years. Though the lender is the direct victim o mortgage raud, raud harms honest homeowners andhomebuyers as well, through increased housing costs. Schemes that involve artiicially inlated appraisals,or example, drive up property tax assessments and oreclosures resulting rom raud depress surroundinghome prices. Clearly steps need to be taken to make the prosecution and prevention o mortgage raudmore eective. To date, however, there has been little agreement on which steps need to be taken.It is critical to recognize the dierence between mortgage raud and predatory lending. “Mortgage raud,”as understood by law enorcement and the real estate inance industry, is the “material misstatement,misrepresentation, or omission relied upon by an underwriter or lender to und, purchase or insure a loan.”
 A lending institution is deliberately deceived by another actor in the real estate purchase process — such asa borrower, broker, appraiser or one o its own employees — into unding a mortgage it would not otherwisehave unded, had all the acts been known. “Predatory lending,” on the other hand, is a term used todescribe a range o lending practices harmul to borrowers, including equity stripping
and lending basedsolely on the oreclosure value o the property. Some o these practices can be raudulent, but deiningan exact set o predatory lending practices has been diicult. This paper seeks to separate the issue o mortgage raud rom predatory lending and to provide policymakers with a roadmap to eectively combatmortgage raud that is distinct rom policy decisions made to address predatory lending.While some anti-mortgage raud proposals have ocused on amending ederal law, ederal law currentlyempowers law enorcement oicials with suicient authority and tools to combat mortgage raud. Theederal mail and wire raud statutes, which are broadly phrased and have been broadly interpreted, reach allpossible cases o mortgage raud. Additional ederal statutes apply to certain instances o mortgage raudcommitted against ederally regulated or insured institutions, providing ederal law enorcement oicialswith additional avenues to combat mortgage raud. Unlike new legislation, which always carries with it therisk o unexpected interpretations, existing law is tested by years o judicial precedent and can be appliedby ederal law enorcement oicers with conidence.
1 Federal Bureau o Investigations,
Financial Crimes Report to the Public,
at 20 (Mar. 2007), available at
2 “Equity stripping,” as a predatory lending practice, generally reers to oreclosure “rescue” schemes where anowner sells the house and leases it back at a higher monthly payment to stave o oreclosure. Once the individualalls behind on those new payments, the house is taken away and any equity built up in the home is lost.
Mortgage Fraud

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