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keep an eye out for
three common scams
Like chameleons changing colors to elude their predators, practi- tioners of mortgage fraud constantly shift strategies to adapt to the
latest housing-market conditions. The
good news, however, is that fraud attempts may be declining. In fact, according to the Financial Crimes Enforcement
Network (FinCEN), there was a 41 percent year-over-year decrease in mortgage loan fraud suspicious activity reports (SArs) in second-quarter 2012,
with a total of 17,476 SArs submitted.
That said, those attempting mortgage
fraud are keenly focused on mortgages
in distress — at a time when real estate
markets in many communities continue
to struggle with underwater mortgages
and stagnant new home construction.
FinCEN officials have said that they ex-
pect this past year’s number of SArs
related to foreclosure rescue to far out-
strip those of previous years.
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2. Short sales and flip sales: This fraud
involves driving down a home’s
value artificially — sometimes by
claiming structural issues or damage
— to gain approval for a short sale.
One tactic often used by appraisers
in these schemes is selecting comparable properties from the lowest end
of available comparable sales. Then,
the house is immediately re-sold at a
much higher value in a pre-arranged
transaction not disclosed to the original lender or servicer. red flags of
these scams may include any of the
following: multiple transactions on
the same property on the same day
or in a brief period (a week or less);
title transfers to a business before
the short sale (which may not be recorded); or a deal’s sales contract
naming a seller who was not identified
as the owner on the day of closing.
3. Affinity fraud: This type of fraud
often revolves around a professional organization, church or social community. Affinity scams can
involve income or employment misrepresentations with altered bank
By John Stoppler
investigations and appeals
United Guaranty Corp.
statements, verifications of employment and phony gift funds. In some
cases, the groups will even set up
phone banks to provide false verifications of employment or income.
red flags may include the borrower’s age, education and job experience simply not justifying reported
income, or a borrower’s earnings
seeming out of sync with assets,
debt levels and credit history.
The ever-evolving nature of schemes
like these shows the value of rigorous
underwriting and review processes.
Going forward, mortgage brokers and
bankers alike should train themselves
to dig into the details of their transactions and react to certain clues and
red flags that can stop fraudsters in
their tracks. •
John Stoppler is vice president, investigations and appeals, with Greensboro, N.C.-based United Guaranty Corp. He has been
with United Guaranty for three years and
was previously with Safeco Insurance, managing the specialty claims unit. An attorney
licensed in California, he is a graduate of the
University of San Diego School of Law and
earned a bachelor’s degree from California
State University, San Bernardino. reach
Stoppler at email@example.com.