Law Enforcement Officials See Increased Sophistication in Mortgage Fraud

Mike Sorohan msorohan@mba.org

October 06, 2017

MIAMI--Mortgage fraud cases have been a downward trend for more than a decade--all the more reason, said law enforcement officials here at the Mortgage Bankers Association's Risk Management, QA and Fraud Prevention Forum, to be even more vigilant.

"Everything points to a decrease in mortgage fraud; that does not mean that fraud is going away," said Christa Lynn Greco, intelligence analyst in the criminal investigative division with the Federal Bureau of Investigation. "In many cases, resources are being diverted to other investigations. Mortgage fraud opportunities continue to abound."

And as the real estate finance industry increasingly digitalizes the mortgage process, criminals are adapting--and thriving.

In August, the FBI Office of Private Sector issued a Liaison Information Report warning of email scams targeting real estate settlement funds. The sophisticated scams target consumers, settlement/title companies, real estate agents, real estate attorneys, builders and others by criminals netting "millions" in illicit proceeds.

"These proceeds are often directed initially to U.S. banks, then redirected via money service businesses and international accounts to Mexico, Nigeria, South Africa, China, Ghana, Turkey and India," the report said. "The increased use of email account compromise techniques, as well as the evolving expansion into previously unidentified countries indicates this fraud scheme is not slowing and puts additional strain on industry participants to be vigilant with their email communications and identify verification processes."

The FBI estimates criminal threat actors diverted an estimated $19 million in fiscal year 2016 from real estate purchase transactions by manipulating email communications of key participants to re-direct legitimate wire transfers, including down payments, earnest money and settlement proceeds to criminally controlled accounts.

"The increasing use of techniques such as identifying realtors via real estate web sites, spoofing, phishing, social engineering, chat rooms, spam and malware is attributable to positive real estate indicators such as housing prices/supply, interest rates, the increase in well-publicized multi-million dollar land development contracts and the proven ease in infiltrating the transaction process. This threat will likely continue on an upward trend as these conditions persist."

In one Florida case, the FBI reported a criminal actor compromised the email account of a Michigan title agency assigned to a closing. Once the criminal identified the buyer's identity, he used a spoofed email account similar to the title agency's to instruct the buyer to wire funds from his local bank in Florida to a business account at a national bank in New York controlled by a "money mule." The mule subsequently sent the money to his personal account at a local bank in Connecticut.

Greco said fraud schemes are increasingly targeting vulnerable populations, such as the elderly, veterans, church groups and community organizations. In the fallout of recent hurricanes (Harvey and Irma), disaster fraud schemes are expected to increase sharply.

"Hacking is easy," Greco said. "Personal information is cheap and you don't even have to go on the Dark Web to buy it."

Rene Febles, deputy inspector general for investigations with the Federal Housing Finance Agency's Office of the Inspector General, said his office is increasingly seeing fraud cases involving builder bailouts and condo conversions, many in the Miami area. "It's not as bad as it used to be, but it's still out there," he said. "These cases are becoming increasingly complex and heartbreaking."

"Mortgage fraud is a crime of opportunity," said Michael Powell, special agent in charge of the Joint Civil Fraud Division with HUD. "Wherever we are in the mortgage life cycle, we're going to see fraud."

Powell said trends are locally driven. "Criminals are lazy," he said. "They are going to go for the easiest path. In metro areas, fraud tends to be fairly uniform--property flips, fraudulent documents, straw buyers. A lot of the fraud takes place in the appraisal process, which is an area in which we'd really like to get a better handle."

Powell said lenders should be concerned by emerging loan products, such as 3 percent down payment products. "They're much riskier; there's no skin in the game for these borrowers," he said. "There are lots of opportunities for borrowers to get into homes with little or no money down and they are more than willing to walk away from the home at the earliest sign of trouble."

Greco said with the increase in digital mortgages, cyber-hacking is of utmost concern warning that cyber-criminals are increasingly sophisticated and ahead of the game. "We need to get more educated on these cyber issues and educate people about them," she said.

Febles encouraged lenders and servicers to contact them if they suspect any wrongdoing. "Your complaint could be part of a bigger scheme," he said.

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