Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Friday, December 7, 2007

Beware: Texas is a mortgage

fraud hotspot

San Antonio Business Journal - by Angela Arnwine

While certainly not as negatively impacted as other cities in the country

by recent real estate trends, San Antonio is feeling the ripple effects on

the heartiness of its economy from increasing foreclosure rates across

the country. In addition to the usual reasons for foreclosure -- job

losses, income reduction, family emergencies -- other factors are

major contributors as well. The unfortunate trend of people simply

getting into more house than they can truly afford by using the

teaser adjustable rate mortgages or initially purchasing the home with

both a first and second mortgage, or even obtaining an interest

only mortgage, has taken its toll.


Metaphorically speaking, homeowners have barely kept their heads

above water, and the waves simply got too high. In order to make the

house happen, the industry has seen an increase in mortgage fraud

across the board including people trying to buy a home, professionals

working in the real estate industry and criminals exposing the

vulnerabilities of the system.


According to the FBI's Web site, Texas is in the top 10 hotspots for

mortgage fraud. The federal government took notice, and the most

recent statistics from the FBI report that mortgage fraud increased

from 3,000 in the year 2000 to almost 22,000 in the year 2005. All

agree that these numbers likely only represent a fraction of the


According to the Mortgage Asset Research Institute, Texas ranks

seventh in the country for fraudulently obtained loans. Even more

disturbing: San Antonio ranks 11th nationally in early loan defaults

-- a common sign of fraud playing a role in the loan application



Fraud takes all forms

Mortgage fraud cuts both ways -- meaning both lenders and borrowers

are victims and perpetrators -- and even includes third-party bad guys.

That fact simply translates into all of us being victims; mortgage fraud

is a lose/lose situation.


The vast majority of mortgage fraud takes the form of misrepresentations

.on loan applications or the production of false financial statements.

.Unfortunately, this is an easy trick and trap, and the borrowers are

either intentionally counting on such things being missed or blindly

provide trumped-up information in pursuit of the elusive American

Dream. Either way, such actions are harmful to the market.


Conversely, lenders bear responsibility because of a string of deceptive

.lending practices. Several lenders have engaged in practices that misled

the borrower by failing to adequately disclose terms and inflating the

.appraised value of properties in order to be able to lend a certain amount.

Add to these issues the enormous scam artist industry such as illegal

property flipping (Think: "We'll save you from a foreclosure."), and you

have a recipe for financial disaster.


Government crackdown

The federal government is responding with increased federal prosecution

.which has resulted in substantial prison time and millions of dollars in



On the state level, Attorney General Greg Abbott's office is prosecuting

.companies and individuals for failure to properly disclose information

to consumers, for charging excessive fees, for over-appraising property

and multiple other infractions. In an effort to educate the consumer, the

OAG has recently added new online resources to the agency's Web

site The new Web page, "Avoiding Home-

Buying Pitfalls and Scams," provides consumers home-buying guidelines

and other helpful information. The Web page also provides tips on

recognizing "foreclosure rescue" scams and other refinancing pitfalls.


In its most recent session, our Texas Legislature passed both civil and

criminal bills in response to the crisis. The penal code was amended

to make it a punishable offense to knowingly make a materially false or

.misleading written statement to obtain a mortgage loan. The statute

of limitations for such crime, and for other provisions under which

mortgage fraud might be prosecuted under, was extended to seven

years. Further, a provision was added to the finance code requiring

lenders to provide each applicant with a written notice at closing that

advises of penalties for false statements and stating that the information

.provided in the application is accurate as of the closing date. Finally, in

an effort to organize a state response to the crisis, the government code

was amended (effective on September 1, 2007) to require the OAG

to establish a residential fraud task force to organize all levels of

law enforcement with prosecuting mortgage fraud.


While clearly a drop in the bucket, the efforts of all levels of

government solidify that fraud in the mortgage industry is taking its

toll. The impact on the overall real estate market cannot be ignored.

Our role, as real estate professionals, is to proactively work to put

back in place the checks and balances on this system that shows all

signs of being a runaway train.


Angela M. Arnwine is a name partner in Prins Arnwine, which has

both a transactional and litigation practice. Contact her at

_   _   _   OFF   _   _   _



Once again, not only lawmakers and the mainstream public misunderstand the mortgage

crisis and the role mortgage servicing fraud has played but here is an investigative reporter

who is also missing key ingredients.


Ed Cage  |  1804 Cross Bend, Plano Texas 75023  |  |  972-596-4363    

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