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Losses from loan fraud surging, say industry, FBI

Email|Print|Single Page| Text size + By Bob Tedeschi
New York Times News Service / April 7, 2008

NEW YORK - Lenders are experiencing a surge in losses from mortgage fraud, according to recent reports from law enforcement agencies and industry research groups. The ripples are reaching borrowers in new ways, as mortgage banks seek to stanch the flow of dollars to con artists.

"It's looking like a record-breaking year already," said Stephen Kodak, a spokesman for the FBI. Kodak said that in first half of the 2008 fiscal year, which ended last month, the FBI received nearly 30,000 "suspicious activity reports." The 2007 fiscal year ended with 46,000 reports and 260 convictions.

The biggest surge in federal law enforcement activity has focused on "fraud for profit" schemes, in which mortgage insiders - appraisers, real estate agents, loan officers, and lawyers - often work in teams. They falsely inflate a home's value, get a huge mortgage to buy it (usually using false identities), split the profits, and then disappear.

Late last year, federal agents said, six people were accused of defrauding homeowners, mostly in Brooklyn and the Bronx, by offering to help the victims "save" their homes from foreclosure.

In reality, the defendants bought the homes with mortgage money they obtained by falsifying information on loan applications, the agents said.

The defendants, who took out more than 80 mortgages or equity loans worth more than $20 million, pocketed the difference between the new loans and the old loans they paid off on their victims' behalf. And they kept the houses.

Lenders will incur about $2.5 billion in losses as a result of mortgage fraud this year, according to a recent report by TowerGroup, a financial consultancy in Needham, Mass.

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