AML CHALLENGES
Foreclosure rescue scams
As in 2006, foreclosure rescue scams
continued to be problematic in 2007.
Escalating foreclosures provide criminals with the opportunity to exploit and
defraud vulnerable homeowners seeking
financial guidance. The perpetrators convince homeowners that they can save their
homes from foreclosure through deed
transfers and the payment of up-front fees.
This “foreclosure rescue” often involves a
manipulated deed process that results in
the preparation of forged deeds. In extreme
instances, perpetrators may sell the home
or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.
Mortgage fraud has become very pervasive. The Operation Malicious Mortgage
law enforcement and prosecutorial sweep
resulted in 144 mortgage fraud cases in
which 406 defendants were charged. As a
result, 60 arrests were made in mortgage
fraud-related cases in 15 districts. This
operation was a joint collaborative effort
of the FBI, U.S. Postal Inspection Service,
IRS-CI, U.S. Immigration and Customs
Enforcement, U.S. Secret Service, U.S.
Trustee Program, Department of Housing
and Urban Development, Office of the
Inspector General, Department of Veterans
Affairs, Office of the Inspector General and
Federal Deposit Insurance Corporation.
FinCEN findings
According to the FinCEN update in
2006, financial institutions filed 37,313
SARs citing suspected mortgage loan
fraud, a 44% increase from the preceding
year. From a sample of 1,769 depository
institution SAR narratives reviewed by
FinCEN to identify additional trends and
patterns reported in those narratives, here
is the summary:
Misrepresentation of
income/assets/debts
43.02%
Forged/fraudulent
documents
28.04%
Occupancy fraud
14.41%
Appraisal fraud
10.18%
Straw buyers
5.65%
ID theft
3.45%
Flipping
2.71%
Comparison of Fraud Instances
Description
Borrower
Mortgage Broker
Appraiser
Fraud for profit
60.66%
62.07%
23.04%
Fraud for housing
58.55%
87.06%
7.46%
Misrepresentation of income/assets/debts
87.12%
64.13%
6.18%
Forged/fraudulent documents
83.06%
68.15%
3.23%
Occupancy fraud
70.20%
61.96%
16.47%
Appraisal fraud
39.22%
48.71%
92.67%
Straw buyers
69.00%
66.00%
25.00%
ID fraud
95.00%
40.00%
<1%
ID theft
40.98%
63.93%
4.92%
Flipping
58.33%
68.75%
100.00%
Source: FinCEN - Rearranged: Consuelo Herrera
According to the FinCEN conclusions,
a consolidation of findings regarding
main types of mortgage fraud is reflected
in Table 2.
What to do?
The priority lies in identifying red flags,
following them through and taking action.
Because mortgage fraud invariably relates
to money on the mortgagor’s side, financial institutions need procedures in place
to deeply analyze applicants’ mortgage
payback abilities. It can be accomplished
through analysis of their tax returns and
their bank statements, and in examining
different relationships between the information contained in their application and
the information in their tax returns.
As for loan officers and decision-makers,
each financial institution should have policies that clearly state what the expectations
are regarding the process of approving
mortgages that meet all the requirements
and the consequences of overriding the
rules. To be effective, they must be trained
and the policies must be published. Many
times brokers work in collusion with
builders and appraisers to flip properties
over and over for higher illegitimate profits
according to the Federal Deposit Insurance
Corporation (FDIC).
The, FDIC3 provided a list of mitigating
steps as follows:
13.11%
ID fraud
Table 2
www.ACAMS.org
Mitigating steps for appraisals fraud:
• Develop reports that track problem
loans by loan officer, broker, appraiser,
underwriter, bank officer, and so on.
• Vary internal loan review scope to
include a sample from all loan officers.
• Research background and ownership of
appraisal firms.
Mitigating steps for flipping schemes:
• Verify the quality of business generated )