Welcome to mortgage fraud central, where criminal conspiracies between banking insiders, fraud rings and greedy government officials are taking Uncle Sam and tax payers to the cleaners. The monthly damage to the nation’s treasure averages over a quarter of a billion dollars. Mortgage fraud and insider collusion go together like ice cream and chocolate.

Florida remains one of the most lucrative areas for mortgage fraud, with California and Indiana making the hit parade as well. The latest statistics for criminal and civil mortgage fraud show a yearly drop of more than a quarter of a billion dollars, comparing October, 2007 with October, 2006.

SOURCE: MORTGAGEDAILY.COM PRESS RELEASE

Mortgage fraud has long since left the small operator behind. These days, the meat of the fraud is generated by organized rings of specialized thieves, including bankers, real estate brokers, government loan specialists and drug king pins.

The mortgage thieves take their money and run, leaving their messes behind for city and federal agencies (that’s you, the tax payer) to clean up. Homeowners pay in a variety of ways, from having their own home value drop when their neighborhoods become ghost towns of abandoned, foreclosed property, to picking up the tab when Uncle Sugar comes to the rescue of the big banks who bought up the phony loans like cyanide laced hard candy.

Mortgage fraud has turned entire city neighborhoods and suburban developments into vagrant-riddled ghost towns. Block after block in many cities are vacant, due to real estate crime, sub-prime foreclosure and abandonment. As banks foreclose on many of these over-priced homes, the homes remain vacant because the phony appraisal don’t reflect their actual value and no one is going to buy a house encumbered with a loan, which exceeds its worth.

The government has active investigations on several high profile banking, mortgage and real estate organizations, and has set hundreds of crooked insiders to prison. According to a compilation of press releases from the United States Department of Justice and industry sources, the cases involve everything from phony title insurance to assigning phony ratings to shaky investment bonds, including an Indiana couple’s charge that a bank failed to follow specific Truth in Lending regulations.

Mortgage fraud is big business, especially for organized crime. Analysts claim that in Japan, the Yakuza is responsible for at least ten per cent of the nation’s mortgage fraud. Drug rings and organized crime have become so involved in mortgage fraud, that police officers in many metro areas are now concentrating on mortgage fraud and money laundering.

The home loan and mortgage business, the crooked business, that is, is raking in billions of dollars every year. The industry is full of illegal fees, document fraud, identity theft, greedy loan officers and greedier consumers, not to mention victims who are losing billions of dollars in the most important purchase of their lives—a home.

An article in the Rocky Mountain News suggests that inflated appraisals are a big part of the problem, as well as the conspiracy to inflate mortgage prices. An industry professional was quoted as saying the phony appraisals are hurting local communities:

said that local governments also can be hurt by inflated appraisals because they unwittingly use them for projecting property tax revenues. In one major subdivision in Pueblo, the property tax collection was 15 percent lower than what had been anticipated because of fraudulent appraisals, he said. (News, 9-27-06)

The paper also notes that many appraisers say their industry has been plagued with fraudulent appraisals for years. According to the article, “Matt George, principal of Centennial-based Eagle Appraisals, noted he has completed more than 20,000 appraisals since 1974 and said "fraud is rampant in our industry."

A blogger on the Los Angeles Times website notes that the coming financial crisis created by the mortgage industry’s love affair with adjustable rate mortgages is poised to make the so-called sub-prime shenanigans look like child’s play:

"The big wave of foreclosures is still coming: people who DO occupy their house and who did not necessarily commit fraud to get the loan, but simply took out an Option ARM and have watched their loan balance grow as their house value has dropped. Those loans allow a low payment for 4-5 years (while the loan balance may be climbing), and since they only jumped in popularity after fixed rates spiked in mid 2003, most of those Option ARMs have not yet even seen the big payment adjustment that's coming. When their payments double (as they will), many of those borrowers will find themselves with too little equity to either sell or refinance (especially if they had 2nd mortgages on TOP of their Option ARMs). Throw in the tighter underwriting standards that have been imposed recently (making refinancing that much tougher) and you have a still-coming perfect storm. The coming crisis is the "Option ARM crisis", which will make the "subprime crisis" look minor in comparison (at least as far as how real estate values are impacted). 9-20-2007. LA Times, L. A. Land blog

By hook, crook, document deception, and consumer self-delusion, brokers, real estate agents, crooked loan officers and appraisers, together with selected crooks inside county government offices, banks and government loan agencies have set the stage for what could be the largest financial collapse in the nation’s history. While the media’s take on the crisis in mortgage loans has been focusing on the consumer’s inability to pay, understand that without the high commissions and fees in real estate, mortgaging and appraising, there would be little reward in this kind of organized, multi-billion dollar fraud.

With fees and commissions on each real estate transaction in the thousands, we can see why a group of crafty crooks would put their heads together and create a few multi-million dollar real estate conspiracies. One Chicago cop told a reporter than real estate fraud is the new street crime—what he didn’t say was the most important street in the fraud is Wall Street.