NEW YORK (CNNMoney.com) — While Congress and the Bush administration are focusing on bailing out struggling homeowners and financial companies, another group of federal officials are going after the people who helped propel the country into the mortgage crisis.
The FBI’s Mortgage Fraud Task Force, which works with federal, state and local law enforcement officials across the United States, has ramped up its work. Its targets: mortgage brokers, lenders, appraisers and professionals who defraud homeowners and bankers.
A federal grand jury is looking into three large players in the housing market – Countrywide Financial, IndyMac and New Century Financial – the Los Angeles Times reported last week. All three succumbed to the mortgage meltdown. The paper said that investigators are also looking into whether Countrywide founder Angelo Mozilo gave mortgage deals to powerful friends and politicians, including members of Congress.
These charges come on the heels of the U.S. Justice Department’s roundup of more than 400 people – accused of inflicting more than $1 billion in losses – who were caught up in the latest nationwide sweep named Operation Malicious Mortgage.
“Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation’s housing market and to the peace of mind of millions of American homeowners,” Deputy Attorney General Mark Filip said in June.
Mortgage schemes come in many flavors, but the most common by far are conducted by industry insiders. Some 80% of all fraud losses involve collaboration or collusion by professionals, which is known as “fraud for profit,” according to the FBI.
In other schemes, professionals steal people’s identities and credit histories to qualify for loans. Sometimes, the sham involves flipping a house from buyer to buyer, inflating its value, before abandoning it.
The other type of fraud, known as “fraud for housing,” involves a borrower falsifying his income or employment to qualify for the loan.
While acknowledging that the feds can’t turn a blind eye to mortgage fraud, industry observers question how effective their efforts will be at stemming such crimes. Some say the problem is just too widespread, while others maintain the key to stopping mortgage fraud lies in closer monitoring of the lenders and other professionals.
The housing market’s collapse doesn’t spell the end of mortgage fraud, Ormsby said. Foreclosure scams will likely increase, for instance.
Clamping down on mortgage fraud is tough, says Patricia McCoy, law professor at the University of Connecticut. Since the players are often small, law enforcement has to go after “many small fish in many different towns” nationwide, she said.
“If the FBI had been much more serious about mortgage fraud, they might have gotten the lenders to be serious about taking fraud prevention measures, she said.