Booming Mortgage Refinancing Industry Matured for Scams |
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America's booming
mortgage refinancing industry has proven ripe for criminal pickings. Cases of mortgage refinancing fraud are mounting. The financial toll is reaching tens of millions of dollars each year, though the actual damage is unknown and probably unknowable. There are more incidents reported every year and more egregious ones in terms of losses. According to a Mortgage Bankers Association analysis released in January, in September 2004 alone, banks reported 12,100 cases of suspicious financial activity for the year, compared with 4,220 in all of 2001. Mortgage refinancing fraud victims are loath to disclose, and complaint volume is kept confidential. Insiders are the main culprits. There's fraud for commission, where a professional such as the mortgage refinancing broker, banker, realty agent or appraiser changes documents to get a commission. This results in a loss to lenders. Borrowers rarely fleece the system. The mortgage refinancing origination market shot up from $1 trillion in 2000, the start of a refinancing tidal wave borne of super-low interest rates, peaking at $3.8 trillion in 2004 before subsiding last year to $2.7 trillion. Too bad the mortgage refinancing industry has no single federal agency monitoring its affairs. Government regulation is splintered and in some cases - notably mortgage brokers - almost nonexistent. You can be driving a truck or selling cars today, and tomorrow be a mortgage refinancing broker dealing with large sums of money. Consider events of recent weeks: Federal housing regulators disclosed investigations into alleged scams across the nation involving illegal kickbacks from title insurers to lenders, realty agents, builders and developers sending them customers. The U.S. Department of Housing and Urban Development settled cases in Texas and Oklahoma for nearly $7 million. Meanwhile, Colorado and California are pursuing state charges against title insurers and their cronies operating there. Several Wisconsin title insurance representatives and lawyers say they've talked to HUD investigators about referral practices. Fannie Mae, the nation's largest mortgage financier, forfeited $7.5 million to federal regulators for not speaking up while crooks sold what it knew were bad loans to a competitor. The Office of Federal Housing Enterprise Oversight now wants to impose a four-day reporting mandate on Fannie Mae and its fellow government-sponsored enterprise, Freddie Mac, regarding any known or suspected fraudulent activity. Warning that millions of dollars are being siphoned from the mortgage refinancing market via money-laundering schemes and fraud for profit, the Mortgage Bankers Association has launched an online anti-fraud center, which will carry public information on mortgage refinancing crimes and punishments plus password-protected security alerts to its members. Demos issued a report warning that conflicts of interest pervade the home loan trade, where inflated property values have delivered handsome benefits to lenders and realty agents, leaving homeowners to discover their dearth of equity. The report suggested that some of the $450 billion in home equity that homeowners cashed out during the 2001-2004 mortgage refinancing boom was based on exaggerated home values due to the common practice of muscling appraisers into pricing a property to make that deal. Some remedy is needed soon! Some trade groups--notably appraisers and mortgage brokers--have urged regulators for stronger governance to roust their wrongdoers. Housing is a more important part of our economy than it's ever been, and people's fortunes are tied to mortgaged properties. We could never nail down the connection between fraud and high mortgage refinancing prices, but it seems intuitive. All you need is for that bubble to pop. If interest rates go up and maybe the economy takes a wrong turn, we could have economic catastrophe. |
