States and Feds Go to War Against Mortgage Fraud

Top Federal regulatory and law enforcement officials joined with attorneys general from 12 states in Washington today to go to war against financial predators who are practicing mortgage fraud against consumers, including financial rescue scams and loan modification fraud.

The Treasury Department, Financial Crimes Enforcement Network (FinCEN), the Federal Trade Commission and the Department of Housing and Urban Development are coordinating information and resources across agency and state lines to maximize targeting and efficiency in fraud investigations. This includes alerting financial institutions to emerging schemes, stepping up enforcement actions and educating consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.

The FTC announced two new law enforcement actions, bringing to 22 the number of mortgage fraud cases the commission has filed since the housing crisis began. The FTC also announced developments in similar pending mortgage-related actions, several of which have involved coordinated case work from FinCEN.

Illegal and predatory practices in the mortgage market are rampant in the wake of the recent financial crisis, including fraudulent television ads that run on prominent networks promising simple solutions to complex financial problems. Federal and state officials discussed patterns of fraud in today’s meeting and best practices for addressing them early, before American families suffer further financial harm.

The coordinated state and Federal assault on fraud was launched following reports that mortgage fraud is at an all-time high. Reported incidents of mortgage fraud increased by 26 percent from 2007 to 2008, according to a recent report from the Mortgage Asset Research Institute (MARI ).

The top fraud incident type in 2008 - representing 61 percent of all reported frauds - was application fraud, the fifth year in a row it topped the list. Second were frauds related to tax returns and financial statements which jumped 60 percent from 17 percent of reported frauds in 2007, to 28 percent of reported frauds in 2008. Additional documented fraud types included, in order of volume, frauds related to appraisals or valuations, verifications of deposit, verifications of employment, escrow or closing costs, and credit reports.

A recent analysis of mortgage industry fraud surveys identified 26 different states as having significant mortgage fraud problems. Although every survey identified Georgia and Florida as having significant mortgage fraud related investigations, the survey also identified nine other states in the South and Southwest, seven states in the West and five states in the Midwest as having mortgage fraud problems

Participating in today’s meeting were Treasury Secretary Tim Geithner, Attorney General Eric Holder, Housing and Urban Development (HUD) Secretary Shaun Donovan, Federal Trade Commission (FTC) Chairman Jon Leibowitz, Network (FinCEN) Director Jim Freis and attorneys. States were repr3esented by attorneys general Dustin McDaniel, Arkansas; Terry Goddard, Arizona; Richard Blumenthal, Connecticut; Lisa Madigan, Illinois; Tom Miller, Iowa; Doug Gansler, Maryland; Chris Koster, Missouri; Catherine Cortez Masto, Nevada; Roy Cooper, North Carolina; Richard Cordray, Ohio; Patrick Lynch, Rhode Island; and Rob McKenna, Washington