Mortgage Bankers Association
© Mortgage Bankers Association 2007. All Right Reserved.
Mortgage raud is a large and growing problem and warrants signiicant 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 artiicially inlated 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 eective. To date, however, there has been little agreement on which steps need to be taken.It is critical to recognize the dierence between mortgage raud and predatory lending. “Mortgage raud,”as understood by law enorcement 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 harmul to borrowers, including equity stripping
and lending basedsolely on the oreclosure value o the property. Some o these practices can be raudulent, but deiningan exact set o predatory lending practices has been diicult. This paper seeks to separate the issue o mortgage raud rom predatory lending and to provide policymakers with a roadmap to eectively 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 enorcement oicials with suicient authority and tools to combat mortgage raud. Theederal 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 enorcement oicialswith 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 enorcement oicers with conidence.
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 reers to oreclosure “rescue” schemes where anowner sells the house and leases it back at a higher monthly payment to stave o oreclosure. Once the individualalls behind on those new payments, the house is taken away and any equity built up in the home is lost.