FBI sees mortgage fraud growing as economy stumbles

WASHINGTON, (Reuters) – Mortgage and investment  schemes targeting troubled U.S. homeowners jumped in 2010 and  may increase further if the economy does not improve, the FBI  said yesterday.

The FBI said in an annual report that pending  investigations increased 12 percent in the fiscal year ended  Sept. 30, 2010, to 3,129 cases. That in turn was a 90 percent  jump from the previous fiscal year.

An FBI official said the trend will continue as more  borrowers struggle to pay their mortgages.

“If we have continuing high unemployment and increased  numbers of foreclosures, what we see is a greater percentage of  the population of existing homeowners being vulnerable to these  schemes,” said David Cardona, FBI deputy assistant director.

The collapse of the housing boom and the resulting  financial crisis has led to a wave of foreclosures. In 2010,  2.5 million foreclosures were initiated, with a similar number  expected this year.
The FBI said mortgage origination schemes have declined due  to the depressed market for home purchases.

Fraud targeting troubled borrowers, however, has increased  and includes loan modification scams and foreclosure rescue  schemes in which perpetrators convince borrowers they can save  their homes through deed transfers and upfront fees.

Cardona said stock market fluctuations have also resulted  in more Americans falling for fake investments.

“It’s not a dynamic that we think will self-correct. If  anything it could get worse,” he said

The report listed “hot spots” for mortgage fraud.  California, Florida and New York were among the hottest of  those, in line with some of the worst unemployment and mortgage  default rates in the country.

Since the FBI was tasked with rooting out criminal activity  that exacerbated the housing crisis in 2008, it has been  criticized as ineffective against powerful executives of  companies tied to the housing and financial industry.

“Although we tried mightily we just didn’t hit the mark,”  Cardona said, referring to the aborted investigation of  Washington Mutual Bank in early August.

Cardona said the government struggles to prove criminal  intent in corporate crime.

One of the biggest cases so far was a $3 billion fraud case  involving the privately held mortgage firm Taylor, Bean &  Whitaker Mortgage Corp. The chairman of the firm, Lee Farkas,  was sentenced to 30 years in prison after being convicted on 14  counts of conspiracy, wire, securities and bank fraud.

Cardona said the FBI is hoping the government can win more  high-profile cases through civil probes. He said the FBI is  cooperating “closer now than ever” with the Securities and  Exchange Commission and Commodity Futures Trading Commission.

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