Bankers! Two down hundreds more to go!

[RodISHI]

Coon Rapids, Minnesota two bank executives looking at up to thirty years for multiple charges of fraud.

Not as good as a hanging that ed would prefer but at least something for their crimes.

Top executives of the former Community National Bank in North Branch indicted in federal court Thursday, 23 April 2009 By Aaron Vehling ECM Post Review staff reporter


Three executives of Community National Bank in North Branch were indicted in federal court on charges of bank fraud, mail fraud and money laundering Wednesday, April 22, for their financial connection in the failed Ramsey Town Center development in Ramsey.

Bank president William Garfield Sandison, 65, of Forest Lake, was charged with 11 counts of bank fraud, two counts of mail fraud, seven counts of misapplication of bank funds, one count of conspiracy to commit bank and mail fraud, one count of conspiracy to defraud the United States and six counts of money laundering.

Bank vice president Ross William Sandison, 42, of Grant, was charged with 11 counts of bank fraud, two counts of mail fraud, seven counts of misapplication of bank funds, one count of conspiracy to commit bank and mail fraud, one count of conspiracy to defraud the U.S. and six counts of money laundering. Ross Sandison is the son of William Sandison.

Bank senior and executive vice president Curtis Alan Martinson, 53, of Eden Prairie, was charged with 11 counts of bank fraud, one count of mail fraud, seven counts of misapplication of bank funds, one count of conspiracy to commit bank and mail fraud, and six counts of money laundering. Martinson reported to William Sandison and Ross Sandison, and served as branch manager and senior lending officer.

According to court documents, the indictments allege that the three men created a plan to defraud financial institutions in connection with a $35 million loan to the corporate entity of the 320-acre, mixed-use Ramsey Town Center development, which eventually ended up in foreclosure and was recently purchased by the City of Ramsey.

If convicted, each man faces a potential maximum penalty of 30 years in prison on each bank fraud count, 30 years on each mail fraud count, 30 years on each misapplication count, 30 years on each conspiracy count, 10 years on each money laundering count and five years on the conspiracy to defraud count.

Here is how it all panned out, according to the court documents' allegations: ....continue to link to read the rest of the story...

 

[RodISHI]

Problems of falsified documents seen by mortgage bankers association in 2006 2007? Twenty-eight percent of the loans made contained fraudulent documents?

FALSE DOCUMENTSPresented by Shirley RodriguezVP Entity Monitoring

This presentation will show examples of false documents, how they were discovered and the corrective measures some lenders have taken to combatthis growing trend. STATISTICSFINCEN report dated April 2008 reported the following:•A sample of 1769 SAR reports were reviewed to identify trends and patterns. 496 (28%) of these were identified as containing forged/fraudulent documents.•Mortgage brokers originated 68.15% of these loans.•The forged/fraudulent documents included W-2’s, tax returns, VOD’s, VOR’s,credit reports and forged signatures on loan documents.•79.64% was seen as fraud for housing and 19.56% was deemed fraud for profit.•52.42% were detected in pre-fund audits; 31.05% were detected in post fund; 9.88% in loan defaults and 3.83% reported by victims reporting forged signatures. SAR review period: April 2006 to March 2007

The problem was well known in 2003 - 2004 and it grew larger by 2006 an unsuspecting public was unaware that the crash would be hitting soon.

Mortgage Loan Fraud

Mortgage Loan Fraud


An Industry Assessment based upon Suspicious Activity Report Analysis

November 2006

Mortgage loan fraud represents a growing percentage of total depository institution SARs. In 1997, reports of mortgage loan fraud comprised 2.12 percent of total depository institution SAR filings. In 2005, reports of mortgage loan fraud had increased to 4.94 percent of total depository institution filings. Figure 2 provides a comparison of the percentage of change in the number of total depository institution SAR filings to the change in the number of SARs reporting mortgage loan fraud.


Mortgage loan fraud can be divided into two broad categories: fraud for property and fraud for profit. Fraud for property generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known. The fraudulent activities observed in the SAR narratives describing fraud for property include: asset fraud; occupancy fraud; employment and income fraud; debt elimination fraud; identity theft; and straw buyers. 4 Fraud for property is generally committed by home buyers attempting to purchase homes for their personal use. In contrast, the motivation behind fraud for profit is money. Fraud for profit is often committed with the complicity of industry insiders such as mortgage brokers, real estate agents, property appraisers, and settlement agents (attorneys and title examiners). Typical fraudulent activities associated with this category in the SAR filing sampling are: appraisal fraud; fraudulent flipping; 5 straw buyers; and identity theft.

Identity theft was frequently reported in conjunction with the commission of suspected mortgage loan fraud. Reports of identity theft increased nearly 102 percent between 2004 and 2005. The depository institution SAR form began collecting data on identity theft in July 2003. The SAR Activity Review – By the Numbers, Issue 6 (May 2006) reported that identity theft was observed in nearly two percent of the total depository institution SARs. Identity theft was characterized as a suspicious activity on over two percent of the total mortgage loan fraud SAR reports. This is significant given the relatively brief amount of time specific data on identity theft has been collected in SARs.

Overview
Real estate mortgage loan fraud poses a growing risk to financial institutions. The Federal Financial Institutions Examination Council reported: “Mortgage loan fraud is growing because it can be very lucrative and relatively easy to perpetrate, particularly in geographic areas experiencing rapid appreciation.”6 Although the true level of mortgage loan fraud is unknown, the growing awareness of mortgage loan fraud is confirmed by the year to year increase in the number of SARs describing this activity. (See Figure 1, Mortgage Loan Reporting Trend.) Depository institutions filed 82,851 SARs describing suspected mortgage loan fraud between April 1, 1996 and March 31, 2006. This represents 3.57 percent of all depository institution SAR filings submitted during that time period.

Over the past 30 years (1975 – 2005), house prices at the national level have grown at about a six percent annual rate. 7 However, in the first quarter of 2005, the national average percentage increase was 12.5 percent. Many U.S. coastal states saw housing prices increase by as much as 20 percent or more during 2004. By contrast, growth rates in many states in the South and Midwest fell below the national average. 8 Interest rates for 30-year mortgages declined throughout the period from 1997 through 2004, with the exception of the first three quarters of 2000. 9 The number of residential loans increased steadily by 153 percent between 1997 and 2003, according to the Federal Financial Institutions Examination Council. 10 “Adjusted 2003 data show that low and moderate-income census tracts taken together experienced the largest increase, 16 percent, in home purchase lending. Such lending for middle and upper-income census tracts increased by 9 percent , respectively, from 2002 to 2003, according to the adjusted 2003 data.” 11 The only year experiencing a decrease in the number of home loans was 2000, possibly due to concern over fluctuating interest rates during the first three quarters of 2000. The rapid growth in mortgage lending activity that resulted from the boom in the real estate industry could result in an increased risk in the mortgage loan industry.

Vulnerabilities Identified in SAR Narratives
Automated loan processing
The use of the Internet and related technology to receive and process loan applications is increasing. The growing faceless nature of these transactions increases the opportunities for fraud (especially identity fraud) and, coupled with “low-document” or “no-document” loans, creates a condition vulnerable to fraudulent activity.

Using the Internet or telephone to receive and process mortgage loans means that lenders may never meet borrowers, even during the loan closing process. In some cases, lenders forward the loan documents to borrowers by courier service and the documents are returned to lenders in the same manner.

Filers reported use of the telephone or Internet in origination of mortgage loans on 106 reports of mortgage loan fraud (less than one percent). Figure 3 depicts the reports of suspected fraudulent loans originated via telephone or Internet since 1998. (Note that the filings for 2006 occurred during the first three months.)

Sub-prime loans associated with suspected fraud
Sub-prime lending involves higher-interest loans extended to consumers with impaired or non-existent credit histories stemming from modest incomes or excessive debts. The mortgage industry designed innovative loan packages to allow more low-to-moderate income borrowers to qualify for loans. Filers reported a pattern of the use of exaggerated or fabricated income information associated with sub-prime loans. Such activity may be part of added efforts by some lenders to qualify borrowers in the sub-prime market.

Loans specifically identified as sub-prime appeared in 68 (less than one percent) of the total reports of mortgage loan fraud. Figure 4 depicts the number of report narratives that describe sub-prime loans in SARs reporting suspected mortgage loan fraud.

Mortgage broker originated loans
The National Association of Mortgage Brokers reports that as many as two-thirds of mortgage loans are now originated by mortgage brokers. Currently there are no national standards for licensing and oversight of mortgage brokers. Some states license mortgage brokerage offices, but not individuals; 24 states have no specific educational or experience requirements for mortgage brokers; and only a few states require criminal background checks on mortgage brokers making it possible for unethical individuals to move from one mortgage brokerage firm to another.

Figure 5 depicts the number of sampled report narratives regarding mortgage broker-originated loans that involved suspected loan fraud. Note that the number of reports filed during the first quarter of 2006 equals the total number of reports filed in all of 2004.

Identity Theft
Identity theft has been associated with both fraud for property and fraud for profit, and is recognized as one of the fastest growing crimes in the United States. Recent news reports of personal information theft from commercial data brokers, corporate databases, and credit report companies demonstrate the potential for large-scale identity theft. Identity theft was characterized as a suspicious activity on 1,761 (2.13%) of the reports of mortgage loan fraud filed from January 1, 2003 to March 31, 2006. Figure 6 shows the increasing incidence of identity theft in conjunction with mortgage loan fraud in the SARs reviewed for this study.

Fixed income and elder exploitation
Retired persons were identified as subjects in 769 (1%) of the SARs reporting mortgage loan fraud filed between April 1, 1996 and March 31, 2006. Additionally, 25 filers suspected exploitation of older subjects in association with mortgage loan fraud. Low- or fixed-income retired persons are often targeted for fraudulent schemes. The growing number of retired and elderly citizens could provide a burgeoning target for mortgage loan fraud. Figure 7 displays the reporting trend for SARs involving this subject group.

Mortgage Loan Fraud Suspicious Activity Report Findings
Characterizations of Suspicious Activity
Many reports included more than one characterization of suspicious activity in addition to “mortgage fraud.” False statement was the most reported suspicious activity in conjunction with mortgage loan fraud. Identity theft represented the fastest growing secondary characterization reported, more than two percent in less than two years. Figure 8 reveals secondary characterizations of suspicious activities reported in conjunction with Mortgage Loan Fraud.

CHARACTERIZATION OF SUSPICIOUS ACTIVITY NUMBER OF SARs % OF TOTAL SARs
P - MORTGAGE LOAN FRAUD 82,851 100.00%
N - FALSE STATEMENT 15,390 18.58%
S - OTHER 3,149 3.80%
U - IDENTITY THEFT 1,761 2.13%
O - MISUSE OF POSITION OR SELF DEALING 1,219 1.47%
G - CONSUMER LOAN FRAUD 699 Less than 1%
E - COMMERCIAL LOAN FRAUD 409 Less than 1%
M - DEFALCATION/EMBEZZLEMENT 373 Less than 1%
C - CHECK FRAUD 290 Less than 1%
A - BSA/STRUCTURING/MONEY LAUNDERING 256 Less than 1%
J - COUNTERFEIT INSTRUMENT (OTHER) 217 Less than 1%
R - WIRE TRANSFER FRAUD 169 Less than 1%
H - COUNTERFEIT CHECK 69 Less than 1%
B - BRIBERY/GRATUITY 68 Less than 1%
D - CHECK KITING 62 Less than 1%
Q - MYSTERIOUS DISAPPEARANCE 60 Less than 1%
K - CREDIT CARD FRAUD 57 Less than 1%
F - COMPUTER INTRUSION 33 Less than 1%
L - DEBIT CARD FRAUD 25 Less than 1%
T - TERRORISM 9 Less than 1%
I - COUNTERFEIT CREDIT/DEBIT CARD 5 Less than 1%


Primary Federal Regulators
Figure 9 displays the primary federal regulators identified in the reports of mortgage loan fraud. National banks with offices located throughout the country made up the largest group of lenders reporting mortgage loan fraud. The Office of the Comptroller of the Currency (OCC) is the primary regulator for national banks. National banks filed nearly 41 percent of the total reports.

Fraud Locations
SARs contain data fields for subject addresses, the filer’s main office address, and the branch address where the suspicious activity was discovered. In the SARs reviewed in this study, suspicious activity occurred in - or was otherwise associated with - all 50 states, the District of Columbia, Puerto Rico, Guam, and American Samoa.

The subject address provides the best source for identifying the geographic location of real estate involved in mortgage loan fraud because most residential mortgage loan applicants intend to reside on the property used to secure the loan. Figure 10 provides a comparison of the address states for the filer and branch offices, and reported subjects, as provided on depository institution SARs filed on mortgage loan fraud between April 1, 1996 and March 31, 2006.


During 2005, the top five reported subject address states were California, Florida, Illinois, Texas, and Georgia.

Reported Suspicious Activities in Sampled Narratives
Loan Types
In the sampled narratives, purchase of residential property was the most frequently reported loan purpose, followed by refinance, home equity, and second trust loans. New construction loans made up a relatively small percentage of the sampled narratives:

Residential real estate purchase loans – 880 (83.65%);
Residential refinance loans (76), home equity/lines of credit (28), FHA Title One loans (20), second Trust loans (4) – (12.17%); and
New construction loans – 16 (1.52%).
Material Misrepresentation/False Statements
Material misrepresentation and false statements were reported on 692 (65.78%) of the sampled narratives. 12 Identity fraud was reported on 160 (23.12%) of the narratives and identity theft was reported on 27 (3.9%) of the narratives. 13 Mortgage brokers or correspondent lenders initiated the loans in 254 (36.71%) of these reports. Following are the types of loan falsifications reported in the sampled narratives.

Altered bank statements;
Altered or fraudulent earnings documentation such as W-2s and income tax returns;
Fraudulent letters of credit;
Fabricated letters of gift;
Misrepresentation of employment;
Altered credit scores;
Invalid social security numbers;
Silent second trust; 14
Failure to fully disclose the borrower’s debts or assets; or
Mortgage brokers using the identities of prior customers to obtain loans for customers who were otherwise unable to qualify.
Misrepresentation of Loan Purpose
Misrepresentation of loan purpose or misuse of loan proceeds was described in 129 (12.26%) of the sampled narratives. Mortgage brokers or correspondent lenders originated the loans described on 37 (28.68%) of the reports of misrepresentation or misuse of loan funds.

Misuse of FHA Title One loans was reported in 20 (15.5%) of these narratives. FHA Title One loans may be used to finance permanent home improvements that protect or improve the basic livability or utility of the property. The funds cannot be used for debt consolidation, cash-out, or any non-home related expenses, or for luxury items such as swimming pools or hot tubs.

The most commonly reported misrepresentation was occupancy fraud, which occurs when the borrower fails to occupy the property, although the loan application specified the property was the borrower’s primary residence. Occupancy fraud was reported in 104 (80.62%) of these reports. Possible motivations for misrepresentation of the loan purpose are to purchase investment property with more favorable loan rates than would be available if a lender knew the property was intended for use other than as a primary residence, or to launder funds from illicit activity.

Appraisal Fraud and Property Flipping
Appraisal fraud and fraudulent property flipping were described in 111 of the sampled reports (10.55%). Appraisal fraud is frequently associated with fraudulent property flipping. Filers indicated on 48 (42.34%) of these reports that they suspected the fraudulent activity was perpetrated with the collusion of mortgage brokers, appraisers, borrowers, and/or real estate agents/brokers.

Lenders rely on accurate appraisals to ensure that loans are fully secured. Appraisal fraud occurs when appraisers fail to accurately evaluate the property, or when the appraiser deliberately becomes party to a scheme to defraud the lender, the borrower, or both. The Appraisal Institute and the American Society of Appraisers testified that “…it is common for mortgage brokers, lenders, realty agents and others with a vested interest to seek out inflated appraisals to facilitate transactions because it pays them to do so.” 15 Higher sales prices typically generate higher fees for brokers, lenders, real estate agents, and loan settlement offices, and higher earnings for real estate investors. Appraisal fraud has a snowball effect on inflating real estate values, with fraudulent values being entered into real estate multiple listing systems and then used by legitimate appraisers as comparable values for determining market values for neighborhood properties. Some commonly reported types of appraisal fraud found in the sampled narratives are:

Appraisers failed to use comparable properties to establish property values;
Appraisers failed to physically visit the property and based the appraisal solely on comparable properties, i.e., the actual condition of the property was not factored into the appraisal;
Appraisers participated in a fraud scheme such as flipping; or
A licensed appraiser’s name and seal were used by unauthorized persons.
Fraudulent property flipping is purchasing property and artificially inflating its value. The fraud perpetrators frequently use identity theft, straw borrowers and industry insiders to effect property flipping schemes. Ultimately, the property is resold for 50 to 100 percent of its original cost. In the end, the loan amount exceeds the value of the property and the lender sustains a loss when the loan defaults. The following fraudulent activities were reported in the sampled narratives that described property flipping.

Nearly 64 percent of sampled narratives described collusion by sellers, appraisers, and mortgage brokers in connection with property flipping.
Nearly 14 percent of the sampled narratives described the use of straw buyers.
The number of sampled narratives that specified fraudulent property flipping activity remained steady over the past four years. A significant spike in reports describing appraisal fraud was seen in 2004, but there was a slight decrease in the trend in 2005. This does not necessarily indicate appraisal fraud and fraudulent property flipping are decreasing, especially since activities associated with flipping (straw buyers and false statements) are increasing. Figure 11 depicts the reporting trend for appraisal fraud and fraudulent property flipping as described in the sampled narratives.


Property flipping and appraisal fraud have received a lot of attention from the media, real estate professionals, and lawmakers. Some actions taken to combat fraudulent property flipping are:

The Housing and Urban Development regulation “Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs; Final Rule” (codified in 24 C.F.R. part 203) makes certain frequently flipped properties ineligible for Federal Housing Administration mortgage insurance. The regulation, which became effective in June 2003, may have impeded some flipping schemes;
Some home builders include clauses in their sales contracts that prohibit buyers from placing their houses back on the market for a period of time after closing – usually one year. 16 There is a question whether this type of contract clause is legally enforceable under applicable state law; and
Some states have adopted new or enhanced appraisal standards and appraisal licensing requirements.
Straw buyers
The use of straw buyers to obtain mortgage loans was specifically described in 27 (2.57%) of the sampled narratives. Mortgage brokers or correspondent lenders processed loans in 21 (77.78%) of these sampled narratives. Straw buyers are reported in the narratives of 2,566 SARs (3.1% of the total of 82,851) reports. Figure 12 displays the total number of mortgage loan fraud SARs that revealed the use of straw buyers.

Forged Documents
Use of forged documents was reported on 20 (1.9%) of the sampled narratives, with correspondent lenders or mortgage brokers processing the loans described in five of those reports. The types of activity reported include the following:

Borrowers forged co-owners’ signatures to loan documents (most often one spouse forging the other spouse’s signature without prior knowledge or permission);
Loan closing services forged applicants’ signatures on loan documents (possibly to expedite the loan process); or
Builders forged borrowers’ names on loan draw documents.
Other Fraudulent Activity
Other types of fraudulent activity reported in the sampled narratives included:

Loan closing services failed to properly disburse loan proceeds or pay off underlying property liens, including prior mortgage trusts. Loan settlement offices were also reported for failure to pay insurance premiums from funds collected at settlement;
Borrowers signed multiple mortgages on the same property from multiple lenders. The mortgage settlements were held within a short period of time to prevent the lenders from discovering the fraud;
Loan closing services failed to record the mortgage in property land records;
Prior lenders failed to release home equity loans in land record offices after receiving mortgage pay-off, causing the new lender’s loans to have a subordinate position. Homeowners continued to use the prior lines of credit in addition to the new loan to obtain an extension of credit that exceeded the property value;
Violations of the Mortgage Broker Practices Act by mortgage brokers who abused the terms of a power of attorney;
Mortgage brokers or correspondent lenders failed to ensure all loan documentation was properly signed;
Real Estate Settlement Procedures Act (RESPA) violations by lenders accepting kickbacks from mortgage brokers;
Non-arm’s-length sales occurred when parties to the real estate transaction failed to disclose relationships between the buyers and sellers. Knowledge of a non-arm’s-length sale would alert lenders to scrutinize loan packages more carefully;
Elder exploitation where older individuals were persuaded to sign loan documents without understanding borrower rights and responsibilities under applicable federal and state law;
Unofficial loan assumption occurred when property ownership was transferred without the knowledge of lenders. This could indicate that a straw buyer was used to obtain the loan, with the property title being transferred to the actual owner after the loan disbursement;
Theft of debit card or convenience checks associated with home equity lines of credit;
Fraudulent bankruptcy filings to stall or prevent foreclosure; and
Suspected use of real estate purchases to launder criminal proceeds.
Emerging Mortgage Fraud Schemes
Asset Rental Fraud
Nine (less than one percent) of the sampled SAR narratives reported asset rental fraud. Mortgage brokers or correspondent lenders processed the loans in six of those reports. This is a fraudulent scheme designed to exaggerate or inflate the stated value of a borrower’s assets. Filers reported that funds were temporarily deposited into the loan applicant’s bank account for the time required to qualify for a loan. The funds came from friends or family, or even from mortgage brokers attempting to qualify an ineligible borrower. The temporary funds were withdrawn from the bank account after the loans were approved.

One elaborate asset rental fraud scheme reported in a news article involved deposits of funds into bank accounts established in a prospective borrower’s name, with the deposited funds being temporarily “rented” for a fee. The customary fee charged for this “service” was reportedly approximately five percent of the deposited funds. The service also may include verification of employment and income in any amount for an additional fee of one percent of the claimed annual income.17

Debt Elimination Fraud
Debt elimination schemes were reported in ten (less than one percent) of the sampled narratives. Filers described borrowers attempting to pay off their mortgages with non-negotiable checks, or fake instruments such as bills of exchange or subrogation and security bonds. Filers described specious arguments in which the borrowers claimed the mortgage was invalid and the debt never existed. 18 The arguments relied on an unreasonable interpretation of Section 1-207 of the Uniform Commercial Code that has never been affirmed or supported by any court or governmental authority.

Other types of debt elimination schemes reported in the SARs were attempts to fraudulently release mortgage liens from municipal land records. Once the land title appeared clear of all mortgage debt, the homeowner could theoretically obtain another mortgage loan based on what appeared to be a clear title. The threat this fraud scheme presents is that a subsequent lender could believe it had a first priority lien on property when in reality there could be little or no equity to secure the loan.

Reports of debt elimination schemes were described in 430 SARs (less than one percent of the SARs reporting mortgage loan fraud) filed between April 1, 1996 and March 31, 2006. Figure 13 depicts the filing trend for debt elimination fraud through March 31, 2006.

Conclusion
The study of the depository institution SARs describing mortgage loan fraud confirms reports of fraud associated with mortgage loans continues to grow – although it is unclear if this is primarily due to an increase in the number of fraudulent loans or an increase in awareness of this suspected fraudulent activity. It is apparent from the number of pending fraud cases reported by the Federal Bureau of Investigation (721 in 2005, up from 534 in 2004) that the awareness of mortgage loan fraud is increasing. 19 See Figure 2 for a comparison of the percentage of growth in total depository institution SARs filings to the growth in reports of mortgage loan fraud.

High home prices coupled with rising mortgage rates result in a reduction in housing affordability. In response to this trend, the housing industry is expecting a slow down in mortgage loan originations, a decrease in housing sales, and a slowing in housing price gains. The slow down in the growth of housing prices could result in the housing industry becoming less attractive to investors, which in turn could result in a reduction in the reports of fraud for profit. The current housing trend could also lead to an increase in fraud for housing as the increased costs of housing decreases the number of persons who qualify for mortgage loans. The current trend of rising interest rates and slowing housing equity growth could result in an increase in debt elimination fraud schemes, especially for homeowners with adjustable rate mortgages and interest only loans.





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1 The information contained in this report is the complete mortgage loan fraud study findings as promised in The SAR Activity Review Trends, Tips & Issues, Highlighted Trend: Mortgage Loan Fraud, Issue 10, May 2006. See http://www.fincen.gov/sarreviewissue10.pdf, page 13-16.

2 See Form FR 2230 (Board of Governors of the Federal Reserve System); Form 6710/06 (Federal Deposit Insurance Corporation): Form 8010-9,8010-1 (Office of the Comptroller of the Currency); Form 1601 (Office of Thrift Supervision); Form 2362 (National Credit Union Administration; Form TD F 90-22.47 (U.S. Department of the Treasury).

3 Federal Financial Institutions Examination Council, Press Release, July 26, 2004, FFIEC Press Release - July 26, 2004. Accessed October 3, 2005.

4 A straw buyer is someone who purchases property for another person in order to conceal the identity of the true purchaser.

5 Property flipping generally involves the buying and selling of the same property within a short period of time with the intention of making a quick profit.

6 Federal Financial Institutions Examination Council, The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third Parties: A White Paper, Produced by the October 27 – November 7, 2003 FFIEC Fraud Investigations Symposium, Issued February 2005. FFIEC Home Page. Accessed August 30, 2005.

7 Mortgage Bankers Association, Housing and Mortgage Market: An Analysis, September 6, 2005. http://www.mortgagebankers.org/file...9899_HousingandMortgageMarkets-AnAnalysis.pdf. Accessed October 11, 2005.

8 Ibid.

9 Federal Reserve Internet site, http://www/federalreserve.gov/releases/h15/data/wf/cm.txt. Accessed October 3, 2005.

10 Federal Financial Institutions Examination Council, Press Release July 26, 2004. FFIEC Press Release - July 26, 2004. Accessed October 3, 2005.

11 Ibid.

12 Material misrepresentation relating to straw buyers, appraisal fraud, or property flipping are addressed in subsequent paragraphs.

13 For the purpose of this report, identity fraud is differentiated from identity theft. Identity fraud as used here refers to the loan applicant’s use of a non-existent social security number or a number taken from the social security death index, along with the use of the borrower’s true personal identifiers (name, date of birth, address). The loan applicant intends to use the Social Security number to qualify for a loan, either because the borrower does not have a number or because the borrower’s credit rating associated with their true number is inadequate for approval. Identity theft, on the other hand, is an attempt to obtain credit in another person’s name.

14 A silent second trust occurs when the seller takes back a second trust from the buyer in lieu of a cash down payment. The lender is not aware of the second trust.

15 Testimony presented on behalf of the Appraisal Institute, the American Society of Appraisers, and the American Society of Farm Managers and Rural Appraisers before the House Committee on Financial Services Subcommittee on Housing and Community Opportunity and the Subcommittee on Financial Institutions and Consumer Credit on Legislative Solutions to Abusive Mortgage Lending Practices, May 24, 2005.

16 REAL ESTATE JOURNAL.COM, The Wall Street Journal – Guide to Property, October 3, 2005. Hitting a Profit 'Sweet Spot' From Property Flipping - WSJ.com, accessed October 5, 2005.

17 Kenneth Harney, “Now You Can Rent Assets To Qualify For A Loan,” The Baltimore Sun, August 28, 2005.

18 Borrowers who presented these specious arguments are believed to belong to groups that believe U.S. laws and regulations, along with banking regulations, do not apply to them. A typical debt elimination fraud scheme involved the presentation of numerous documents containing frivolous arguments that the subject mortgage was invalid. The arguments presented in the documents avowed that funds were never loaned, despite the fact that the borrower received the proceeds. Successful culmination of this scheme would result in the filing of a fraudulent mortgage discharge.

19 Federal Bureau of Investigation, Press Release, “Mortgage Fraud operation “Quick Flip”, December 14, 2005. Http://www.fbi.gov/pressrel/pressrel05/quickflip121405.htm. Accessed May 16, 2006.





Introduction
In recent years federal and state law enforcement and regulatory agencies have devoted considerable effort to the prevention, investigation and prosecution of mortgage loan fraud. The United States has experienced substantial growth in mortgage lending markets and of innovative loan products that have expanded consumer access to home finance. At the same time there has been a significant increase in filings of Suspicious Activity Reports (SARs) pertaining to suspected mortgage loan fraud.1

FinCEN’s Office of Regulatory Analysis conducted this assessment to identify any trends or patterns that may be ascertained from an analysis of SARs regarding suspected mortgage loan fraud. Analysts searched the Bank Secrecy Act database for SARs 2 from depository institutions filed between April 1, 1996 and March 31, 2006 that contained “Mortgage Loan Fraud” as a characterization of suspicious activity. The search retrieved 82,851 reports, which were examined to discern the trends and patterns revealed in this assessment. A random sample of 1,054 narratives was reviewed for additional analysis. The parameters for the sample size were set to provide a 95 percent confidence level with a plus or minus three (+/-3) confidence interval. The analysis revealed - among other trends addressed in this report - a sharp increase in the number of SARs reporting mortgage loan fraud beginning in 2002. This trend is depicted in Figure 1 below.

Executive Summary
SARs pertaining to mortgage loan fraud increased by 1,411 percent between 1997 and 2005. This report filing trend continues apace in 2006, with 7,093 reports filed on suspected mortgage loan fraud during the first quarter, an increase of 35 percent over the SAR filings in the first quarter of 2005. One explanation for the increase in SARs reporting mortgage loan fraud is increased awareness of the potential for fraud in a dynamic real estate market. Many areas in the United States saw double-digit growth in real estate values during 2003 and 2004. At the same time, mortgage loan interest rates were at a historic low. Although growth in the housing industry appears to be slowing in the first quarter of 2006, opportunities for fraud are still present.

Reports of mortgage loan fraud rose significantly in 2003. The Federal Financial Institutions Examination Council reported an increase in the number of mortgage loans beginning in 2003: “The 2003 data include a total of 42 million reported loans and applications, which is an increase of about 33 percent from 2002, primarily due to a significant increase in refinancing activity (approximately 41 percent).” 3 SARs on mortgage loan fraud increased over 92 percent between 2003 and 2004. The increase in filings may be attributed to an increase in overall mortgage lending concurrent with the decline in interest rates in the 2002 – 2005 timeframe and a broader awareness of this fraudulent activity. Figure 1 depicts the filing trend between 1997 and 2005.

 

[RodISHI]

More at the compliance and enforcement page of the IRS

Former Senior Vice-President of Twin City Bank in Arkansas Sentenced for Bank Fraud and Money Laundering
On April 22, 2009, in Little Rock, Ark., Brent Geels, a former Senior Vice-President of Twin City Bank, was sentenced to 57 months in prison, to be followed by three years of supervised release during which Geels is to perform 100 hours of community service. In addition, Geels was ordered to pay $1,409,225 in restitution to Twin City Bank and its insurance company. Geels pleaded guilty to the charges of bank fraud and one count of money laundering on December 8, 2008. According to court documents, between 2004 and 2007 Geels transferred stolen funds exceeding $10,000 to his own account and used the funds to pay credit card charges. Under federal law, it is a crime to engage in a financial transaction with funds in excess of $10,000 when those funds were derived from specified unlawful activity, which includes bank fraud. Geels diverted approximately $1,237,037 into his own account. Additional transactions were used to pay fees or interest to Twin City Bank.

Former U.S. Bank Employee Sentenced in Bank Embezzlement and Tax Evasion Case
On April 7, 2009, in Cincinnati, Ohio, Daryl Turner was sentenced to 41 months in prison, to be followed by three years of supervised release, and ordered to pay $1,134,077 in restitution to U.S. Bank and $294,130 in restitution to the Internal Revenue Service (IRS). Turner pleaded guilty in December 2008 to charges of bank embezzlement and income tax evasion. According to court documents and testimony, during the years 2001 through 2006, Turner was employed as a trust officer in Institutional Trust and Custody, a department of U.S. Bank (formerly Firstar), which received payments from various mutual funds in connection with settled litigation accounts. Through his position, Turner was able to obtain and convert to his own use funds belonging to U.S. Bank. Turner generated checks payable to his wife or another individual, instead of directing the funds into the U.S. Bank accounts for the intended recipients. Turner deposited the checks into multiple bank accounts that he had control over. According to court documents, Turner embezzled a total of $1,134,077 from U.S. Bank. In addition, for the 2001 through 2006 income tax years, Turner failed to report the embezzled funds on his federal income tax returns. Turner evaded a total of $294,130 in individual federal income taxes.

Former Texas Bank Official Sentenced For Transporting Stolen Funds Across State Lines and Money Laundering
On February 24, 2009 in Tyler, Texas, former banker Brent Steven Lemons, of Arlington, Texas was sentenced to 75 months in prison and ordered to pay $1.8 million in restitution for money laundering and transporting stolen funds across state lines. According to information presented in court, Lemons worked as the senior vice president of investments and financial advisor at Banc of America Investment Services and as president of the Tyler Market of Bank of America. He withdrew $80,000 of an investor's funds without their knowledge or consent and transported those funds to Louisiana in order to transfer them to Boyd Corporation, which is associated with Sam's Town Casino in Shreveport, Louisiana. Lemons was indicted by a federal grand jury on March 4, 2008. He pleaded guilty on August 20, 2008.

Delaware Business Man Sentenced on Fraud Charges
On February 5, 2009, in Wilmington, Del., Andrew N. Yao, of Bryn Mawr, Pennsylvania, was sentenced to 60 months in prison, to be followed by five years of supervised release, and ordered to pay more than $12.5 million in restitution. In addition, Yao is subject to an order of criminal forfeiture for an additional amount of approximately $1 million. In June 2008, Yao pleaded guilty to a 10 count Indictment charging him with making false statements to a financial institution, mail fraud, wire fraud, and engaging in an illegal monetary transaction. According to court documents, from 1998 through 2002, Yao obtained a series of personal and business loans totaling over $40 million dollars. During this time, Yao was the president and sole shareholder of Student Finance Corporation ("SFC"), a closely-held Pennsylvania corporation operating in Newark, Delaware. SFC was in the business of funding and servicing student loans and has been in bankruptcy since June 2002. Court documents state that from the early 1990s through 2002, Yao hired an accountant to prepare fraudulent personal tax returns for himself and fraudulent corporate tax returns for SFC, as well as fraudulent Personal Financial Statements. Those tax returns were for the purpose of showing Yao's net worth and were not filed with the IRS. The accountant prepared returns stating that Yao’s income exceeded the income reported to the IRS by millions of dollars. Yao provided fraudulent financial documents to various lenders, including Wilmington Trust of Pennsylvania, First Union National Bank, U.S. Bancorp and Wachovia Mortgage, when applying for personal and business loans. These loans included a $25 million dollar line of credit for SFC, a personal loan for a private plane purchased by Yao that was valued at over $4 million, a loan for the $3 million refinance of Yao’s vacation home, and other loans that generated $7.2 million in cash for him.

Virginia Man Sentenced to 84 Months in $33 Million Mortgage Fraud Case
On January 30, 2009, in Alexandria, Va., Vijay K. Taneja, of Fairfax, Va., was sentenced to 84 months in prison, followed by three years of supervised release, and ordered to pay $33 million in restitution to four financial institutions: Franklin Bank, First Tennessee Bank, Wells Fargo Bank, and EMC Mortgage Co., a wholly owned subsidiary of J.P. Morgan Chase & Co. Franklin Bank is currently under FDIC receivership. According to court documents, Taneja through his company, Financial Mortgage, Inc., (FMI), utilized a group of financial institutions (referred to as warehouse lenders) to temporarily fund mortgages and then sold the mortgages to another group of financial institutions as long-term investments. Beginning in 2001, FMI began defrauding these financial institutions, causing an accumulated loss of at least $33 million to four financial institutions by the time FMI filed for bankruptcy in June 2008. Taneja accomplished the scheme mainly by creating fictitious loans with bogus loan closings, selling the same legitimate loan to multiple investors and pocketing the proceeds generated from refinancing loans, when the bulk of those proceeds were intended to payoff prior mortgages on the same properties.

Rhode Island Man Sentenced for Bank Fraud and Tax Fraud
On January 5, 2009, in Providence, R.I., Michael P. Tatro was sentenced to 51 months in prison, followed by five years of supervised release. As a condition of supervised release, Tatro was ordered to pay $59,178 in restitution to Citizens Bank and must cooperate with the Internal Revenue Service (IRS) to resolve his outstanding tax liabilities. On March 11, 2008, Tatro pleaded guilty to one count of making and subscribing a false tax return and one count of bank fraud. According to documents filed and statements made in court, from May 2002 through September 2003, Tatro engaged in a scheme to defraud Citizens Bank through which he caused various checking accounts to be opened, created counterfeit checks, caused the counterfeit checks to be negotiated through accounts under his control, and caused the funds to be withdrawn or otherwise transferred out of the accounts before the counterfeit nature of the checks was discovered. Tatro also filed a false 2002 federal tax return that stated he was single and his income was $77,944, when, in fact, he was married and had received income substantially in excess of that amount during that year. He failed to report on his tax return proceeds of the bank fraud, as well as funds he obtained under false pretenses from his employer, Thielsch Engineering. Tatro admitted that the intended loss related to the bank fraud was $150,134, and the tax loss was $58,000.

Brothers Sentenced in Million Dollar Mortgage Fraud Conspiracy
On December 5, 2008, in Alexandria, Va., Mohammed Rababeh, of Vienna, Va., and Ahmed Rababeh, of Haymarket, Va., were sentenced for their roles in a million dollar mortgage fraud conspiracy. Mohammed Rababeh was sentenced to 24 months in prison and Ahmed Rababeh received 18 months in prison. The two men had pleaded guilty on September 24, 2008, to conspiracy charges arising from a fraud scheme involving several real estate mortgage loans that they and their co-conspirators obtained between April 2004 and September 2006. According to court documents, the brothers conspired with Randolph Baltimore, 50, of Leesburg, Virginia, to submit fraudulent loan applications overstating Baltimore’s income and omitting his liabilities, so that Baltimore could purchase properties the Rababehs wanted to sell. The Rababehs agreed to pay Baltimore $27,500 to serve as the buyer on four such properties. Mohammed and Ahmed Rababeh engaged in similar fraud schemes to obtain loans to buy properties in their own names, according to court papers. Mohammad Rababeh obtained more than $2 million in such loans, and the losses to the lenders could be as much as $1 million. Baltimore pleaded guilty to the conspiracy on June 24, 2008, and was sentenced September 26, 2008, to 12 months in prison.

Three Palm Beach County Residents Sentenced for Mortgage Fraud
On December 4, 2008, in Miami, Fla., three Palm Beach County residents were sentenced for their participation in a mortgage fraud scheme totaling more than $6.5 million. Defendant Lauren Jasky was sentenced to 36 months’ imprisonment, to be followed by 5 years of supervised release. On December 1, 2008, defendant Ralph Michel, a/k/a Ralph Duverneau, was sentenced to 30 months’ imprisonment, to be followed by 4 years of supervised release. On November 19, 2008, defendant Berry Louidort was sentenced to 37 months’ imprisonment, to be followed by 5 years of supervised release. All three defendants previously pled guilty to conspiracy to commit bank fraud and mail fraud. Defendants Michel and Louidort also pleaded guilty to a money laundering charge. According to court documents and court testimony, this investigation began with an audit conducted by the Florida Office of Financial Regulation into 24 sub-prime mortgage loans initiated by Compass Mortgage Service, Inc. (“Compass Mortgage&#8221, of Boca Raton, FL. The initial audit revealed that the loans included excessively large fees paid to defendants Berry Louidort and Ralph Michel. The fees, ranging from $29,000 to $650,000, were described as marketing and/or assignment fees. In fact, however, the fees were kickbacks to defendants Louidort and Michel based on inflated sales prices. The audit also revealed that the majority of the suspect loans were originated by defendant Lauren Jasky, senior vice president of Compass Mortgage. To execute the scheme, the defendants fraudulently bought and sold residential property in Palm Beach County, FL. Defendants Louidort and Michel received large assignment and marketing fees and Jasky received mortgage brokerage fees. The defendants prepared fraudulent loan applications for the purchasers and submitted them to the lenders. The applications included materially false information about the borrowers’ employment verification, income, funds on deposit, and rent history.

 

[RodISHI]

Another nice link to see the trends of the banking industry from 2005.

Now news Acrhive, August 16, 2005

The operating units of nationally chartered banks cannot be regulated by the states, according to a ruling by the U.S. Court of Appeals for the Ninth Circuit in San Francisco. The decision affirms a lower court's 2003 ruling that California regulators' attempts to require Wells Fargo Home Mortgage to hold a state license to offer mortgages was not legal. However, it reverses that court's ruling that the state cannot prohibit banks from charging interest too early. The state accused the Wells Fargo unit of violating state law by charging interest more than one day before county offices recorded mortgages. That practice cost homeowners about $200 per mortgage. The appeals court ruled that California's rules on per-diem mortgage fees were valid, and that they were not pre-empted by the Depository Institutions Deregulation and Monetary Control Act of 1980. But the appeals court's main ruling is a huge victory for large banks that want to be regulated under less-strict federal laws. The Office of the Comptroller of the Currency (OCC) and The Clearing House Association, an 11-bank group that includes Citigroup, Bank of America, and J.P. Morgan Chase, oppose state regulation. New York Attorney General Eliot Spitzer and 34 other attorneys general advocate greater state oversight of banks as a way to reduce lending abuses. Monday's edition of American Banker said that the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable plan to file a joint brief this week supporting The Clearing House and the OCC (American Banker and Reuters via The New York Times Aug. 15) ...


Wells Fargo has agreed to pay between $19 million and $34 million to as many as 96,000 retailers to settle charges that it imposed improper credit-card processing fees during a four-year period. The complaint centered on the inadequate disclosure of fees, said Howard M. Jaffe, an attorney representing merchants in the suit. He said Wells didn't inform retailers that it would impose a fee if they manually entered a customer's credit-card number, and that the company would not explain the fees when merchants called to ask about them. Jaffe said that while the case was about disclosure, it also opens the door for others to attack the fees themselves. A group of retailers filed a lawsuit in July alleging that Visa illegally sets credit-card fees. The merchants added MasterCard to the case this month. Retailers will keep suing banks and credit-card networks, predicts Chris Allen, a senior manager at Dove Consulting. "In a globally competitive marketplace where cost is everything, merchants are going to look for ways to reduce their costs, and this seems to be a way that they've found some success in doing so," said Allen (American Banker and MarketWatch Aug. 15) ...

 

[RodISHI]

Added this one in the thread.

A federal grand jury has indicted four former brokers from Merrill Lynch, Citigroup, and Lehman Brothers Holdings for allegedly allowing a day trader to eavesdrop on conversations with institutional clients via the firms' internal communications, or "squawk box" systems. Squawk boxes are the internal intercom systems that brokers use to communicate buy and sell orders. A prosecutor's official said the primary charges are securities fraud and commercial bribery. The Securities and Exchange Commission also brought civil charges against the day trader, John J. Amore, and the four brokers--Kenneth E. Mahaffy Jr. Timothy J. O'Connell, Ralph D. Casbarro, and David G. Ghysels Jr. The agency claims Amore told traders working for him to listen to the squawk-box information, which included what stocks the firms' big institutional clients wanted to buy and sell (The Wall Street Journal Online and Bloomberg.com Aug. 15) ...

Predatory mortgage bill moves to House floor

WASHINGTON (5/1/09)--A bill to curb abusive and predatory lending could be on its way to the House as early as next week.

On Wednesday, the House Financial Services Committee approved H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009. The legislation was sponsored by Reps. Brad Miller (D-N.C.), Mel Watt (D-N.C.), and Barney Frank (D-Mass.).

The bill would:



Ensure that mortgage lenders make loans that are beneficial for a borrower by banning yield spread premiums and other abusive compensation structures that reward originators for "steering" borrowers toward higher cost loans;


Require originators to disclose to consumers the compensation they receive from the transaction;


For mortgage refinancings, require that all loans provide a net tangible benefit to the consumer. Also, it would make the secondary mortgage market responsible for complying with these standards when it buys loans and turn them into securities; and


Require new federal rules to be written to require creditors to retain an economic interest in a material portion--at least 5%--of the credit risk of each loan that the creditor transfers, sells, or conveys to a third party. Federal banking agencies would have the authority to make exceptions to the bill's risk retention provisions, including form and amount.



H.R. 1728 also encourages the market to move back toward fixed-rate, fully documented loans. During the housing boom, some mortgage lenders moved away from traditional underwriting practices in favor of more exotic loans.

The Credit Union National Association (CUNA) supports the bill's intent, although it has warned lawmakers that the legislation could conflict with regulatory actions already in place to curb abusive lending.

 

[garyd]

So just under 4% of Loans were fraudualent. The nature of the fraud is unclear but seems to be based on property flipping, ie buying a property fixing it up and selling it at a profit a few months later. Interesting.

 

[RodISHI]

Mortgage Bankers new low for the mortgages that they have with altered docs. Get the unsuspected borrower to sign an agreement that all the documents are true and correct in their loans.

FRAUDULENT LOAN DOCUMENTS CONTINUE TO SURFACE IN CONNECTION WITH FORECLOSURES; “LENDER” ARROGANCE MOVES INTO THE COURTS
January 29, 2009

Recently, FDN has been deluged with a rash of cases where the borrowers were not provided with copies of their executed loan documents following closing and which they were provided with only after repeated demand and after a foreclosure issue arose. A disturbing pattern of conduct is emerging in these cases involving what appears to be the creation of fraudulent or altered loan documents with forged borrower initials and forged borrower signatures.

In several cases from California and other western states, the “income” page of the loan application has been altered, including such forms as closing the loops on a number “3” so that the borrowers’ income which was put down as $3,000.00 per month was changed to $8,000.00 per month. Another situation has occurred where a number “1” placed in front of the income figure so that for example $4,000.00 per month becomes $14,000.00 per month. The borrower’s initials on these altered pages have been forged, and forged signatures have come up on Prepayment Riders, Adjustable Rate Riders, and Option ARM Riders. In more than one case, the box which the borrower marked on the loan application for “fixed rate” was “whited out”, and the “Adjustable” or “ARM” box was checked. All of these alterations were done post-closing without prior knowledge or consent of the borrower, and in situations where the loan was sold as part of the securitization process..........................

LOAN MODIFICATION AGREEMENT

R-4 The Borrower is currently in default under
the Loan Agreement, the Note and the Deed of Trust in the
following particulars _________
R-5 As of the Effective Date, the Loan
Documents are all in full force and effect and enforceable
according to their terms, and the rights of the Lender as set
forth therein (including all remedies available to the Lender
as a result of the defaults set forth in Recital 4 above) are in
full force and effect and have not been released, waived,
modified, altered or in any way diminished by agreement,
course of conduct or otherwise and may be enforced
according to their terms against the Borrower and the
Guarantor.
R-6 As of the Effective Date, each of the
representations and warranties made by the Borrower,
Guarantor or both in any of the Loan Documents are true
and correct and no default of any of the provisions of the
Loan Documents has occurred except as expressly set forth
in Recital 4 above.

 

[Xenophon]

Coon Rapids???

Wow, big timers!

 

[Toro]

Coon Rapids???

Wow, big timers!

The Fifth National Bank of Coon Rapids...

There was a lot of fraud.

 

[RodISHI]

Coon Rapids???

Wow, big timers!

The Fifth National Bank of Coon Rapids...

There was a lot of fraud.

In Minnesota there is a lot of fraud. Actually throughout the states there is a lot of fraud. These investigations take years and the banks have hidden it very well in many cases.


It really makes no difference if it is a small bank or a large one. I believe they just have not gotten to the larger banks yet.

 

[mash107]

Woooo, more unintended consequences.

Preventing credit from reaching borrowers will just depress home prices even further, as demand will surely decrease as a result! Maybe I'll be able to buy, with cash, a decent home after a year or two if congress keeps enacting laws to depress home prices. Too bad that screws over everyone else.

 

[garyd]

Coon Rapids is another type of thing that seems to have nothing on the face of it to do with home owners it seems a comercial boondoggle of the sort that your boy clinton was accused of over the White water fiasco. And let's not forget that ninety % of mortgages proceedures in which the banks and financial outfits are merely signing off on paper work that the realtor prepared in advance. So in many cases all you're doing essentially is chraging the banks with not doing a very good job of investigating loan apps that they got second hand.