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Mortgage fraud not being investigated

By Melissa Wirkus

Instances of mortgage fraud have been increasing throughout the nation, with falsified and inflated appraisals being the most common crimes within the genre.

Corrupt appraisers commit various acts of mortgage fraud by knowingly giving a borrower an inflated price of a home in order to close the transaction. The borrower then borrows more than there home is even worth (as a result of the exaggerated appraisal) and this can lead to various degrees of financial disaster, including foreclosure.

Although there have been various rules and regulations put in place to combat these growing crimes, there still seem to be many problems with investigating these crimes all together.

An article posted on Realty Times on October 18, 2006, “Most fraud charges not investigated,” looks into how a growing number of these ever-important cases are being overlooked, especially at the state level.

“A lack of enforcement at the state level is a major reason appraisals remain at the root of mortgage fraud, said panelists at a symposium sponsored by the Appraisal Foundation earlier this month. A third of the states ‘are doing a great job’ at responding to cases alleging fake, false or erroneous appraisals, Mark Simpson of Fannie Mae told the conference. And another third are ‘so slow that we don't know what to think. They sit on referrals for three years.’ But the other third don't even do anything, Mr. Simpson testified.”

When a case of mortgage fraud is reported, it goes into one of the two mortgage conglomerates of the United States, Fannie Mae (Freddie Mac is its counterpart); Fannie then reports the cases to the individual states that the report originated from.

“Douglas Vincent, executive vice president and chief collateral officer at Countrywide Bank, said most instances of appraisal fraud go unreported because there is no central agency to which complaints can be transmitted. And even when suspicions are reported, state regulators as well as the federal appraisal subcommittee ‘lack the funds and staff’ to investigate most of what they are told.”

Most people in the industry are calling for tougher sanctions on mortgage fraud offenders. It seems as though many people who are committing these crimes that are costing taxpayers thousands of dollars a year are not even being reported and/or investigated.

“Appraisers who commit fraud need more than just slaps on the wrist, they ‘need to be punished’ by having all their assignments taken away, the industry spokesman said. Valuations may be subjective, he explained, but fraud is not. ‘Fraud is an intentional and material misrepresentation. A faulty or even fake appraisal is at the basis of most fraudulent mortgage transactions.’”

In the meantime, the U.S. government is doing the best they can to combat mortgage fraud, but are not overtly enthusiastic.

“Speaking for Uncle Sam, John Arterberry, executive deputy chief of the fraud section in the Treasury Department's criminal division, said that while mortgage fraud is a national priority, the Feds can't stop it by themselves. ‘We're doing what we can to fight a problem that has gone from bad to worse. But when we arrive on the scene, everything is broken and nothing else is working,’ he said.”