The pandemic of mortgage fraud, which last year reached organized-crime levels of collusion and conspiracy, worsened in 2005 and, along with the easy-money lure of rising home prices, real estate and banking officials are getting some of the blame.

No matter who ultimately goes down for the crime, consumers are advised to be on the look out suspicious mortgage activity including pressure tactics, failed disclosures, unsubstantiated home values, homes recently purchased and sold again, and other red flags that fraud may be packaged with the deal.

The Federal Bureau of Investigation announced 21,994 reports of "suspicious" real estate activity, including mortgage fraud, in fiscal 2005, up from 17,127 the previous year. The 2004 number was nearly two a half times 2003's levels.

The FBI statistics also reveal 721 pending mortgage fraud investigations in numerous states, up from 534 in 2004 and more than three times the number in 2003. The 2003 numbers, at the time, was the agency's largest ever nationwide enforcement operation directed at financial institution fraud, including mortgage fraud.

As the effort has grown, more suspects are walking.

There were 170 related convictions in 2005, down from 172 in 2004 and 206 indictments in 2005, down from 241 in 2004.

Fewer convictions contribute to the growth in costs related to the crime -- $429 million in 2004 to $1.014 billion in 2005.

Along with the FBI and Department of Justice, the Secret Service, U.S. Postal Inspection Service, Office of the Inspector General, Internal Revenue Service, Department of Housing and Urban Development, state attorneys general, and other law enforcement agencies are investigating the crime from street-beat level to task force efforts.

FBI investigators said lenders must be more diligent about checking Social Security numbers and signatures on loan applications to make sure they are legitimate. FBI investigators also continued to hammer banking officials about verifying appraisals. Some types of mortgage fraud would be impossible without over-inflated appraisals.

Chris Swecker, assistant director of the FBI, said while the hot real estate market is attracting legitimate buyers and investors, they are being duped by a growing number of "industry insiders" who comprise 80 percent of all reported fraud losses by using collaboration or collusion to siphon cash from rising home values.

Earlier this year Grant D. Ashley, assistant director of FBI law enforcement services, said the criminal actions can strip borrowers of their cash, homes and favorable credit standing. Lenders are victims too as bad loans end up in foreclosure. With real estate as a cornerstone of the national economy, the economy suffers too.

A first-cousin to predatory lending, mortgage fraud, according to the FBI, is defined as "a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan."

"Typically, their M.O. (method of operation) is revolving equity, falsely inflating property values, or issuing loans based on fictitious properties," Ashley said.

Ashley also said property flipping is a hot mortgage fraud tactic. It's legal to buy a property and sell it soon after for a profit based on real market forces. Illegal flippers, however, buy properties and then conspire with appraisers to artificially inflate their value before reselling. Ashley said flipped properties are repurchased for 50 percent to 100 percent of their original value.

Equity skimming is another trend -- insiders persuade unaware borrowers to repeatedly refinance their mortgages every few months. With each refinance, the rate may be slightly lower but the come-on includes a higher loan amount necessary to cover the origination fees and other costs of refinancing. After the perps repeatedly skim equity in the form of origination fees, the loans become too large for the borrower and he or she defaults.

"Many people want to believe their homes are worth more than they are, and the recent housing booms across the U.S. have attracted criminals who want to exploit the situation to make a quick profit," Ashley said.

Published: December 20, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.