What Happens:
In 2007, Sally had trouble making her mortgage payments, and by September, she got a notice that her house was going to be taken away. A few days later, a man who said he could help called her. He told her she could get a $40,000 check to help pay her bills, and she wouldn't have to worry about her house going into foreclosure. At the end of October, Sally went to a title company in Maryland to sign some papers. She went home with a check for $40,000. In December, she started making payments to District Properties on her new house. After nine months, Sally had trouble again making her house payments. This time, instead of a letter about foreclosure, she got a letter telling her to move out. Sally realised over time that she no longer owned her house and was just renting it. Sally called District Properties out of fear. The man who answered the phone told her that Subprime Mortgage Co. had two loans against the house, one for $264,000 and one for $66,000. She could buy her house back for $360,000, which was three times the mortgage she had a year earlier. Sally couldn't afford to buy her house at that price with her income and credit. The man apologised and then hung up.
What It Is:
Sally was a victim of mortgage fraud for profit, which is also called "equity skimming" and has happened to a lot of people who live in the District. A mortgage broker, a real estate agent, an appraiser, a "investor," a "straw buyer," and a "bird dog" all worked together to set up the scheme that she fell for. Each person in the plan got a piece of Sally's house's equity. In the end, Sally lost her house, Subprime Mortgage Co. went into foreclosure, and the group that ran the scam made more than $100,000.
This kind of fraud is not the same as predatory lending, in part because Sally never gave anyone money. Predatory lending is when a homeowner or a legitimate buyer gets a single loan with very high fees and a high interest rate. Mortgage fraud to make money is usually a more complicated scheme that includes an inflated appraisal, fake loan applications, equity skimming, property flipping, and sometimes identity theft. Usually, the borrower is a "straw buyer" who never plans to live in the house. The investor or a company that the investor controls pays the mortgage payment. At some point, the investor either stops paying the mortgage, which forces the lender to take back the house, or sells (or "flips") the house to make more money.
In a typical scheme to commit mortgage fraud for financial gain, a "bird dog" checks public real estate records and drives around certain neighbourhoods looking for homes that are in bad shape. When a house is found, the bird dog tells the investor where it is and gets about $1,000 for his or her work. A "straw buyer" poses as a buyer. This is a person with good credit or a credit score that has been inflated. In some cases, a straw buyer is a person whose identity has been stolen. The person whose name has been stolen may find out when credit is denied or when the purchase shows up on a credit report. In some cases, a straw buyer is a professional who is part of the scheme. A straw buyer, on the other hand, is usually someone who hears from family, friends, or coworkers that someone will pay $5,000 to $10,000 to use his or her name. As with most financial deals that seem too good to be true, things often go wrong for a one-time straw buyer. His credit may be ruined because the mortgages aren't paid, law enforcement may look into him for fraud, or he may be charged with conspiracy.
Along with "bird dogs" and "straw buyers," a "mortgage broker" and "appraiser" are also very important people in a "for-profit" mortgage fraud scheme. Most of the time, both are involved in the scheme and get paid to make fake documents. Employees of a title company also play an important role in the industry because they make closing documents and send out money after a sale is done. The scheme is also used by professionals who have access to credit report databases or software that makes W-2 forms and pay stubs. According to the 2006 FBI Financial Crimes Report, 80 percent of all mortgage fraud losses are caused by people who work in the industry. This could be why mortgage fraud to make money has become so common all over the country. A professional mortgage broker, for example, can easily persuade a homeowner who is about to lose his home to foreclosure that he should sign contracts that give his house to someone else. Most people trust people who work in the financial field. This is one reason why government rules that require people in the financial industry to meet certain standards are so important for protecting consumers.
