Mortgage fraud is an escalating problem

Mortgage fraud is not new. The accounting fraud, insider trading and deceptive sale practices are reported by financial institutions.

FBI said it received 46,717 "suspicious activity reports" from financial institutions related to mortgage scams in 2007, compared with 35,617 in fiscal year 2006 and just 6,936 in 2003.

The total dollar loss attributed to real estate financing fraud is unknown. The report filled in 2007 indicated that 7% of the suspicious activity is more than $813 million and this is the tip of the iceberg.

The suspicious activity is concentrated in the north-central region of the U.S.A. The report said the top ten states for 2007 were: Florida, Georgia, Michigan, California, Illinois, Ohio, Missouri, Indiana, Tennessee, Virginia, New Jersey and Connecticut.

How mortgage scams work?

1. The latest scheme is called "shotgunning" in which the property owner applies for several home equity loans with multiple lenders at the same time. The First American Title Insurance Co. noticed the attempted sham when they received multiple title orders on the same property and notified the lenders before they funded the loans.

2. Lenders were not so lucky in dealing with a ring of con artists who managed to obtain ten mortgages totaling more than $1 million on a Chicago area condominium with a market value of about $125,000.

   The loan applications were made over a three-week period via lender web sites and call centers, not in person. None of the lenders knew of the other liens when they were making their underwriting decisions, because of the delay between the dates the loans were closed and the dates the liens were filed in the courthouses.

3. Multiple sale of the same house. In this case, the same "owner" - who may not be the rightful owner at all - "sells" the same property simultaneously to several unsuspecting buyers. When each buyer uses a different lender and title company, this highly orchestrated scheme is "virtually impossible to detect."

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