Mortgage Fraud Is Rising, With a Twist -- Wall Street Journal Reports

Wall Street Journal Real Estate August 23, 2010


Mortgage Fraud Is Rising, With a Twist / Adopting to Tighter Rules After Collapse, Scammers Turn to More Complex Plots

By ROBBIE WHELAN

New data suggests that mortgage fraud—which got tougher to pull off after the collapse of the U.S. real estate market—is returning in a big way.

Data prepared for The Wall Street Journal by research firm CoreLogic, examining about seven million home loans made by hundreds of lenders, show that losses from mortgage fraud—ranging from falsified credit reports to identity theft—rose 17% last year after declining 57% in the two years after its 2006 peak.

In 2009, $14 billion in loans, or about 0.7% of all mortgage loans made in the U.S., were originated with fraudulent application data.

The figures are a fraction of the mortgage market, but the increase is sharp.

CoreLogic, which tracks fraud only by mortgage value, examines about 7 million loans each year using a proprietary computer program that detects discrepancies in loan documents and predicts the likelihood of fraud. The real losses to banks won't be known for several years when banks are forced to write off the value of the loans' value.

New data suggest losses from mortgage fraud nationwide rose 17% last year.
Some of CoreLogic's profits come from selling market research to lenders aiming to cut losses from mortgage fraud.

Investigators and lenders say they are seeing a similar upswing in fraud.

The Federal Bureau of Investigation in June indicted a Phoenix man for mail and wire fraud among other alleged crimes when the agency says he tried to steal a house from his landlord. Also in June, federal prosecutors in New Jersey charged 29 defendants—including 12 real-estate agents, four mortgage consultants, an appraiser, a bank employee and a mortgage broker—with wire fraud in an alleged scheme involving 17 properties in the state and losses of $5.5 million.

"Even though we have certain compliance measures in place, people will adapt whatever scheme," said Sharon Ormsby, the FBI's section chief for financial crimes. "It doesn't matter if the market is going up or down."

The kinds of fraud that contributed to the mortgage crisis and the collapse of the housing market were relatively simple. Crooks took advantage of the size of mortgage loans and the lax rules governing who qualified for them.

In one common con, they would recruit as accomplices "straw buyers" with good credit to apply for "no-doc" loans, which required no documentation or proof of income, to buy their house. Good credit was required because lenders generally did check a borrower's credit score, even if they didn't require pay stubs or bank statements.

When the bank sent funds, typically to make a down payment or for a home-equity loan, the schemers and the fake buyer would split the profits and walk away, leaving the house to fall into foreclosure and the bank stuck with the loss.

Since the mortgage crisis, banks and the government-sponsored entities that underwrite or insure mortgages, including Fannie Mae, Freddie Mac and the Federal Housing Administration, have tightened lending standards and closely scrutinize mortgage applications.

No-doc loans are a thing of the past, and many lenders now require borrowers to furnish proof of employment, tax forms, credit reports, bank statements and other documents.

Fraudsters have adapted to the new restrictions. With banks less apt to lend to borrowers with shaky finances, criminals rely more on falsifying documents, recruiting loan officers and other bank insiders to work for them, and stealing identities to get loans, federal investigators and mortgage industry research reports.

In the Phoenix case, prosecutors allege, Jose Victor Buencamino did all three. Some people who knew Mr. Buencamino describe him as a large, friendly man devoted to his children, the life of many a party and a passionate golfer. Gary Weaver, who rented a home to Mr. Buencamino last year, has a different impression. He said the Arizona businessman tried to snare him in an elaborate mortgage scheme.

According to a federal indictment unsealed in June, while Mr. Buencamino was renting Mr. Weaver's house on the golf course at Moon Valley Country Club, he intercepted mail intended for Mr. Weaver and obtained his social security number, then applied for a driver's license in Mr. Weaver's name.

Then, the indictment alleges, with the help of a friend who worked as a loan officer at a local branch of Compass Bank, a unit of Spanish bank Banco Bilbao Vizcaya Argentaria SA, Mr. Buencamino obtained a $245,000 cash-out mortgage on the property. A homeowner using a cash-out mortgage refinances the home loan for more than the mortgage is currently worth and pockets the difference in cash.

A Compass Bank spokesman didn't respond to requests for comment. Mr. Buencamino, who couldn't be located for comment, has not responded to the charges.

A federal agent said he had been tracked to Vancouver, where the agent said he is applying for Canadian residency. Prosecutors involved in the case said he didn't have an attorney on whom they could serve court papers. U.S. authorities said they were seeking his extradition.

"Fraud continues to be a pervasive issue, growing and escalating in complexity," said an April report from LexisNexis's Mortgage Asset Research Institute, which cited as reasons easy access to records via the Internet and, in many cases, though not Mr. Weaver's, the vulnerability of cash-strapped homeowners.

MARI's breakdown of the numbers reflects the shift in technique. Fraud related to falsified credit reports has declined each year since the boom years, MARI reports, while the share of mortgage fraud involving false appraisals jumped 50% between 2008 and 2009.

Application fraud—in which borrowers lie about their names, where they live, how much money they earn, their employment, their debt or their assets—remains high, accounting for 59% of all mortgage fraud.

One of the defendants in the New Jersey dragnet, a mortgage consultant with Newark-based Invest & Investors LLC named Viviane Bernardim, allegedly paid accomplices $15,000 apiece to steal the identities of several New Jersey residents who earned $90,000 or more and had good credit ratings. She used those identities to obtain second mortgages on a number of homes in the Newark area, according to U.S. Attorney Paul J. Fishman, head of the office prosecuting the case.

But since good credit ratings are no longer enough to get a mortgage, Ms. Bernardim also needed friends who worked for the lenders to pull off the caper.

"Having players at every level of a conspiracy makes it easier to carry out fraud," said Mr. Fishman. "But each bad actor and criminal act is also another chance for law enforcement to find a way in."

Maria Delgaizo Noto, an attorney for Ms. Bernardim, said that she had no comment until an indictment was unsealed, but that her client "maintains her innocence of any criminal activity."

In Phoenix, Mr. Buencamino's alleged fraud was assisted by an insider, but also by easy access to public documents on the Internet. After intercepting mail intended for Mr. Weaver and obtaining his Social Security number, Mr. Buencamino applied online for an Arizona driver's license in Mr. Weaver's name, according to the criminal complaint and law enforcement agents involved in the case.

When he received the permit, he submitted mortgage application documents by mail to Compass Bank and, with the help of co-conspirator William Baxaveneous, the Compass loan officer, obtained a second mortgage on Mr. Weaver's home—which had no mortgage—without ever having to meet any bank officials face to face, Mr. Weaver said. He said he learned this from the federal agents investigating the case.

Mr. Baxaveneous's attorney said he was trying to settle the case and declined to comment further.

Dog Days of August

Here we are coming to the final two weeks of August and what is the hottest summer I can remember in many years.

It's been a slow month and I look forward to the cooler days of Autumn and what I hope for is better news across the country with our economy. 

What YOU Need to Know - "Real Estate Education" - New York State - Brokers & Salespersons

The following information is reprinted in its entirety from the Department of State's website for your information:

The Department of State’s “Real Estate Education” Campaign

The following are some basic facts that anyone looking to buy, sell or rent should know. 

These facts are part of a new brochure that is available for download on the Department of State homepage, http://www.dos.state.ny.us/.  [This is the link to the brochure itself.]

What you need to know before entering into a real estate transaction:

1. All real estate professionals[1] must be licensed by the Department of State, and they must renew their licenses every two years.
2. To check if a person who represents themselves as a real estate salesperson or broker is, in fact, licensed by the state of New York, you can search the Department of State website, http://www.dos.state.ny.us/ by clicking on the “eAccessNY” link [this is the direct link to the search area for licensed real estate professionals] and entering the name of the person or by calling (518) 474-4429.
3. Buyers, sellers, renters and landlords all have the right to hire their own broker in a real estate transaction.
4. You should not assume that an agent is acting solely on your behalf. Unless you have entered into a written agreement with the broker, he or she could be representing the other party to the transaction.
5. When you have hired an agent to represent you, he or she owes you the following duties: reasonable care, undivided loyalty, confidentiality, full disclosure and the ability to provide you with an accounting of any money collected or expended on your behalf.
6. Real estate salespeople and brokers must disclose whom they are representing in the transaction at the time of their first contact with you.
7. Commission fees are negotiable. You have the right to negotiate the amount of the commission to be paid to a broker or salesperson. There is no such thing as a mandatory commission rate.
8. If a broker collects fees that you owe to the landlord or seller, such as a deposit or the first month’s rent, the broker has an obligation to separate that money from his or her own. If the money is not immediately provided to the landlord or seller, the broker must put the money into a separate escrow account until the transaction has been closed. If the transaction does not close, the broker cannot keep the money and must return it to you.
9. Non-refundable commission deposits are not permissible. A broker earns a commission when he or she finds a person who is ready, willing and able to purchase the property or rent the apartment. Only if the broker has assisted the parties in reaching an agreement on all of the material elements of the deal has he or she earned a commission.
10. Real estate salespeople and associate brokers work under the oversight and supervision of the broker with whom they are associated. You have the right to contact the broker with any concerns about the transaction or the agent’s handling of the transaction. Some salespeople and associate brokers advertise themselves as a “team” or “group.” This is not a separate company. These agents still work for a broker who is responsible for supervising their activity.

The brochure also includes information on where New Yorkers can turn if they believe that they have been a victim of a loan scam or of abusive lending practices. New Yorkers are encouraged to visit the Department of State’s website if they have any further questions about what constitutes illegal or dishonest actions by licensed real estate professionals – and to report these actions to the Department if they experience them.

[1] To become a licensed real estate salesperson, an individual must take specific coursework and pass an exam on state real estate law and practice. To work in New York state, salespersons must be associated with a real estate broker. Real estate brokers are individuals who, after gaining two years of experience in real estate sales, take additional coursework and exams in order to own or operate their own brokerage firms. Real estate appraisers must take required coursework and exams to become certified in estimating the value of real property.

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Additional news available at http://www.dos.state.ny.us/about/new2.htm.
New York State Department of State | info@dos.state.ny.us | 518.486.9846 | 212.417.5801