Mortgage Fraud Causes Higher Prices
BOSTON (AP) _ Consumers are paying higher prices for mortgages because of fraudulent mortgage loans _ an estimated $60 billion-per-year industry, one expert said Monday.
Thirty percent of all mortgage loans are based on false information and 15 percent to 20 percent of loans would never be made if lenders knew all the facts, said Richard D. Ward, president of the Los Angeles-based Affinity Corp., and a former police officer.
And it’s consumers who pay the price, through higher loan costs, lending fees and interest rates, Ward said at the annual convention of the Mortgage Bankers Association.
FBI statistics show that $1.7 trillion in residential mortgage loans or refinancing packages were issued in 1998, said Roger A. Jackson, Affinity’s chief financial officer. Of that total, about $60 billion was fraudulent.
One of the most common forms of fraud is ``property flipping,″ where a property is bought and then resold _ or ``flipped″ _ several times, each time at a falsely inflated higher price, among a single group of people.
The property is then sold to an unsuspecting mortgage company that, seeing the previous purchase and sale prices, pays much more for the property than its market value.
When the company tries to resell the property, it loses tens of thousands of dollars. Often, the property sellers can’t be tracked down because they’ve left town or used fake names to begin with.
Other schemes might be simpler: by creating false identities with stolen Social Security numbers, for example.
Barry Chartier, a private investigator from Whittier, Calif. who specializes in mortgage loan fraud, said it’s not uncommon for people to use the Social Security numbers of dead people to take out fraudulent mortgages.
Others _ sometimes people in the mortgage industry _ simply use a randomly chosen Social Security number, or steal a number from old files or loan applications, Chartier said.
The ease with which computer users can create bank statements, verifications of employment, W-2 tax forms and other documents needed for mortgage applications is also contributing to fraudulent activities, Jackson said.
As housing markets tighten around the country and prices go up, it’s more likely that borrowers will fudge the facts, he added.
``If the property value’s increasing, what does a borrower have to do to qualify for that house?″ he said. ``He may have to do a false tax return to increase his income, or he may have to inflate his assets.″