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2008 FBI Mortgage Fraud Report Reminds Buyers (and Sellers) Why it is So Darn Hard to Get that Loan Approval

It is getting harder and harder to satisfy mortgage loan underwriters these days. Ask anyone who makes a living helping Chicago area home Buyers or Sellers close their real estate contracts.

  • Tight mortgage lending guidelines are requiring Buyers to document every last nickel of income and savings, the sources of those funds.
  • New appraisal rules are insulating property appraisers from real estate agents and loan officers.
  • Lenders are requiring specific (and increasingly careful) examination of chains of the transfer of title ownership.
There is a lot more paperwork being required. Its taking Longer. Frankly, it is a pain in the kishkes trying to manage the process and keep deals together as a loan application winds its way through the lending pipeline.

I hear a lot of grousing from Buyers, Sellers & Real Estate Agents. (OK, I grouse about it too)

But then, Tuesday's FBI report on Mortgage Fraud reminds us all why we are working so much harder. Our present day (would be) borrowers are bearing the consequences of the sins of our predecessors.

Some key findings & conclusions:

  • The downturn in the economy, spike in foreclosures and defaults, & diminishing credit availability are fueling rampant mortgage fraud fraught with opportunistic participants desperate to maintain or increase their current standard of living
  • In 2008, suspicious activity reports increased 36 percent to 63,713 after 46,717 filings were reported in 2007.
  • at least 63% of all pending FBI mortgage fraud investigations during 2008 involved losses totaling more than $1 million.
  • In 2008 FBI mortgage fraud investigations totaled 1,644, a 37 percent increase from 2007 and a 100% increase from 2006.
  • Popular schemes include builder bail-out, short sale, foreclosure rescue, credit enhancement, loan modification, illegal property flipping, seller assistance, bust-out, debt elimination, mortgage backed securities, real estate investment, multiple loan, assignment fee, air loan, asset rental, backwards application, reverse mortgage fraud, and equity skimming.
As lenders tighten the screws on lending guidelines and procedures to stem the tide of frauds, I imagine that future reports will show a decline in the number of overall suspicious activity cases. Scammers will move on to other, more lucrative schemes.

None of this makes it any easier for our clients, or our workloads. But at least it helps remind us why things are the way they are right now.
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