DRAFT Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods Mortgage fraud is bank robbery without a gun. 1 It is a high-yield, 2 low risk enterprise that has been reported in all 50 states, Puerto Rico, Guam, American Samoa, 3 Canada, 4 New Zealand, 5 Australia, 6 and England. 7 In the United States, it is committed by organized international and domestic rings, 8 street gangs, 9 terrorists, 10 drug traffickers, 11 real estate agents, 12 closing attorneys, 13 appraisers, 14 mortgage brokers, 15
The targeted victims distinguish mortgage fraud from predatory lending. In predatory lending cases the borrower is victimized by the illegal practices of the lender or its agents with respect to fees and disclosures relating to the cost of the loan. It is unfortunate that the media, consumer activists, legislators and law enforcement personnel frequently conflate mortgage fraud with predatory lending since it adds unnecessary confusion to an already complex issue and diverts attention and badly needed resources from the fight against true mortgage fraud. 2 The average “take” on a bank robbery is approximately $3,000.00. By contrast, the average straw borrower receives a “cut” of at least $10,000 and the orchestrator’s “take” in a mortgage fraud transaction frequently exceeds $100,000. In a few cases the orchestrator’s take was in excess of $1 million dollars, and in one, the perpetrator, who later fled the country, received $7 million in “profit” from the same-day flip of a mansion. 3 Financial Crimes Enforcement Network, “Mortgage Loan Fraud: An Industry Assessment Based on Suspicious Activity Report Analysis,” November 2006 at 10. http://www.fincen.gov/news_room/rp/reports/pdf/mortgage_fraud112006.pdf (accessed March 8, 2009). 4 See, e.g., “Due Diligence: The Growing Problem of Mortgage Fraud), CBC News, November 9, 2006. http://www.cbc.ca/news/background/mortgage-fraud/ (accessed January 4, 2010). 5 See, e.g., Anne Gibson, “Agents on Charges for House Fraud Sale,” New Zealand Herald, December 26, 2006. http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10361509 (accessed January 4, 2010). 6 See, e.g., “Australia Targeted by Card Skimming Gangs,” October 14, 2009. http://www.abc.net.au/news/stories/2009/10/14/2714003.htm?section=australia (accessed January 4, 2010). 7 See, e.g., Richard Edwards and Myra Butterworth, “Toxic Debt Could Have Come from Massive Mortgage Frauds,” The Daily Telegraph, March 10, 2009. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4970457/Toxic-debtcould-have-come-from-massive-mortgage-frauds.html (accessed January 4, 2010). 8 See, e.g., U.S. v. Bowens, 2:07-CR-00544 (D.Ariz. 2007) (defendants convicted of scheme conducted over five years in three states involving 19 properties and 10 vehicles). 9 See, e.g., David Jackson, “Mortgage Fraud is the Thing to Do Now,” Chicago Tribune, Nov. 5, 2005. 10 See, e.g., U.S. v. Omar, 2:06-CR-756, superseding indictment (D. Utah 2006), and Patrick Poole, “Mortgage Fraud Funding Jihad,” FrontPageMag.com, April 11, 2007. http://www.frontpagemagazine.com/articles/Read.aspx?GUID=2FB5D093-D93D-404B-B4CD-AEEA3DB9CEBF (accessed March 8, 2009). 11 See, e.g., United States Immigration and Customs Enforcement press release, Nov. 19, 2008. http://www.ice.gov/pi/nr/0811/081119newyork.htm (accessed March 8, 2009). 12 See, e.g., U.S. v. Rice, 1:2002-CR-00691 (N.D. Ga. 2002). 13 See, e.g., U.S. v. McFarland, 1:04-CR-224 (N.D. Ga. 2004) (superseding indictment); U.S. v. Sprouse, 3:07-CR-211 (W.D. N.C. 2007) (fourth superseding indictment). 14 See, e.g., U.S. v. Ross, 5:06-CR-40068 (Kan. 2006) (first superseding indictment). 15 See, e.g., U.S. v. Hooker, 2:05-CR-80897 (E.D. Mich. 2005).
This document is a research report submitted to the U.S. Department of Justice. This report has not been...