Field Guide to Mortgage Fraud
(Updated September 2014)
Mortgage fraud is one of the most notorious crimes in the United States. It has left many home owners with "underwater" mortgages that are substantially higher than the valued price of their home, many lenders with defaulted loans and foreclosed homes, and many real estate professionals in the precarious position of needing to rigorously screen new clients' financial portfolios while keeping apprised of major regulatory changes and new procedures. Learn about the different types of mortgage fraud and discover how to recognize the signs, take precautions, and report incidents. (K. Stockert, Information & Web Content Specialist)
Q - ProQuest articles available for NAR members only. Password can be found on the ProQuest/Find Articles page.
Recognizing the Signs
Mortgage fraud may include, but is not limited to:
- Property flipping
- False and inaccurate appraisals
- Equity skimming
- Application fraud
- Credit or income misrepresentation
- Asset and down payment misrepresentation
Source: Mortgage Fraud: Recognizing the Signs, (National Association of REALTORS®, 2006).
Mortgage Fraud Defined
Mortgage fraud comes in many different forms and can derive from any of the parties involved in the mortgage acquisition process—buyers, sellers, investors, property developers, appraisers, real estate agents, creditors, lenders, etc.—so it is important that all parties involved in the mortgage process recognize key signs of fraud and stay informed of the procedures for prevention. The articles below offer a starting point for understanding mortgage fraud.
Source: Mortgage Fraud Report 2010, (U.S. Federal Bureau of Investigation).
Risk Management Resources
Don't Be A Victim Of Loan Fraud, (U.S. Department of Housing and Urban Development).
5 Real Estate Scams You Need to Know About, (REALTOR® Magazine, Aug. 2010).
Short Sales Ethics: 6 Temptations to Avoid, (REALTOR® Magazine, Apr. 2010).
Quiz: Mortgage Fraud, (National Association of REALTORS®).
Impact of Mortgage Fraud
“[Since 2008] 196 defendants have been charged with crimes investigated by the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”). Of these, 136 were convicted (others await trial) – 85 already sentenced to prison (others await sentencing). In the first criminal case of the President’s RMBS Working Group, trader Jesse Litvak was sentenced to prison and fined $1.75 million after SIGTARP’s investigation of fraud against the Government in his sale of RMBS to 6 of 8 TARP money managers” (Source: SIGTARP Quarterly Report to Congress, July 30, 2014).
Bank of America’s Mortgage Fraud Deal Yields Quick Impact, (Reuters, Aug. 26, 2014).
Supreme Court Clarifies Rules for Restitution in a Case of Mortgage Fraud, (Boston Globe, May 6, 2014).
8 States with the Most Mortgage Fraud Cases, (REALTOR® Magazine, Feb. 10, 2014).
Mortgage Broker Sentenced in $39 Million Mortgage Fraud, (Mortgage Daily, Oct. 17, 2013).
Mortgage Application Fraud Risk Drops Slightly, (Banking Exchange, Oct. 23, 2013).
Market Rebound Attracts Greater Mortgage Fraud Risk, (Banking Exchange, Sept. 2013).
Mortgage Fraud Wanes, but Looser Lending Raises Risks, (CBS, Sept. 2013).
Mortgage Fraud Prevention
Mortgage Fraud: How to Avoid Becoming a Victim. (U.S. Federal Bureau of Investigation, Aug. 14, 2008).
What You Need to Know About Mortgage Fraud, (CNBC.com, Oct. 2013).
Bank of America Sued for Alleged Mortgage Fraud, (CNN Money, Oct. 24, 2012).
California, Nevada team up to investigate mortgage fraud, (Washington Post, Dec. 2011).
Avoiding Mortgage Fraud is Everyone’s Business, (The Canadian Property Valuation, 2012). Q
Lenders Try to Catch Borrowers’ ‘White Lies’, (REALTOR® Magazine, June 1, 2012).
Keep Your Clients Safe from Mortgage Relief Scams, (REALTOR® Magazine, Apr. 23, 2012).
Why Mortgage Fraud Still Exists, (Mortgage Banking, Aug. 2010). Q
Preventing Fraud at Closing, (Mortgage Banking, Nov. 2009). Q
Reporting Mortgage Fraud in the United States
The Federal Trade Commission (FTC)*
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
- Filing a Complaint with the FTC - For complaints against companies, organizations, or business practices, click the link or call (877) FTC-HELP
- FTC Identity Theft site - For complaints regarding identity theft, click the link or call (877) ID-THEFT
- Para Espanol?
*Note: The FTC does not resolve individual consumer problems. The FTC does investigate mortgage fraud with the goal of bringing it to the justice department for legal action; your input will aid the FTC in this process.
U.S. Federal Bureau of Investigation (FBI)
935 Pennsylvania Avenue, NW
Washington, D.C. 20535
- For the FBI's latest updates and details on Mortgage Fraud issues, click here
- Locate an FBI office in your area to report fraud or call the toll-free number 1-800-CALL-FBI (1-800-225-5324). You can also fill out an online FBI Tips and Public Leads Form.
Financial Fraud Enforcement Task Force—Established in November of 2009 by President Obama, the Financial Fraud Enforcement Task Force is designed with the intent to hold accountable "those who helped bring about the last financial crisis, and to prevent another crisis from happening."
PreventLoanScams.org—The Lawyers' Committee for Civil Rights Under the Law is a U.S.-based nonprofit organization formed in 1963. "The principle mission of the Lawyers' Committee is to secure, through the rule of law, equal justice under law. As a leader of the Loan Modification Scam Prevention Network (Network), the Lawyers' Committee administers the www.preventloanscams.org website, and leads the enforcement and data collection efforts for the Network."
- If you think you've been scammed or approached by a company or individual promising to help you with your foreclosure, report it today or call 1-888-995-HOPE.
The Office for Victims of Crime (OVC) is a federal office within the U.S. Department of Justice that "provides federal funds to support victim assistance and compensation programs around the country and advocates for the fair treatment of crime victims."
- To access a searchable online directory of crime victims' services, click here.
Better Business Bureau is NOT affiliated with the U.S. government. It is operated by the Council of Better Business Bureaus Inc. and allows businesses and organizations to join as members. The mission of the Better Business Bureau is "to successfully resolve complaints involving buyers and sellers in a fair and timely fashion."
SIGTARP—Office of the Special Inspector General for the Troubled Asset Relief Program (TARP)
SIGTARP is “a sophisticated, white-collar law enforcement agency, was established by Congress in 2008 to prevent fraud, waste, and abuse linked to the $700 billion Troubled Asset Relief Program (TARP) […] SIGTARP conducts criminal and civil investigations related to TARP, audits how TARP assets are managed, and recommends ways to improve the program.”
Research On Your Own
Mortgage AND Fraud
- Enter into ProQuest text box as mortgage AND fraud
LexisNexis® Mortgage Asset Research Institute: Twelfth Periodic Mortgage Fraud Case Report (Free; registration required).
The Mortgage Bankers Association® releases monthly and quarterly economic outlook reports and forecasts on the mortgage banking industry. To review these reports, click here.
Mortgage Fraud Blog is an opinion-based website edited by Rachel Dollar, "an author and a nationally recognized speaker on the topic of mortgage fraud" with a background as a Certified Mortgage Banker and attorney.
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
Busted: Life Inside the Great Mortgage Meltdown, (Overdrive Audiobook)
Confessions of a Subprime Lender, (Adobe eBook and Kindle)
Fraud Prevention for Commercial Real Estate Valuation, (Adobe eBook and Kindle)
Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, (Kindle, Adobe eReader)
The New Rules for Mortgages, (Kindle, Adobe eReader)
Books, Videos, Research Reports & More
The resources below are available for loan through Information Central. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Information Central at 800-874-6500 for assistance.
Financial Shock: A 360 degree look at the subprime mortgage implosion, and how to avoid the next financial crisis, (Upper Saddle River, NJ: FT Press, 2009).
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