Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods
Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods Ann Fulmer March 2010
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.
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.