Top Cities for FBI Mortgage Fraud Investigations: 2010 - 8 News NOW

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Top Cities for FBI Mortgage Fraud Investigations: 2010

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The FBI considers Nevada one of the states most prone to fall victim to mortgage fraud, third in fact behind Florida and California. Last year the FBI's Las Vegas field office conducted 292 mortgage fraud investigations, most in the nation. Many were tied to Operation Stolen Dreams, which went after perpetrators who submitted fraudulent loan applications and faulty appraisals to artificially inflate the price of a home. They'd reap the profits from the loan and often walk away from the home, leaving the lender holding the bag and devaluing neighborhoods. The FBI says the perpetrators, often real estate insiders, have access to financial documents, mortgage origination software, notary seals and other methods that help their schemes.

  FBI Field Office
1. Las Vegas
2. Los Angeles
3. New York City
4. Tampa, FL
5. Detroit
6. Washington, D.C.
7. Miami 92
8. San Francisco
9. Chicago 83
10. Salt Lake City

Source: FBI 2010 Mortgage Fraud Report Year in Review

Whenever the FBI's Financial Crimes Intelligence Unit issues its annual mortgage fraud reports Nevada and Las Vegas typically figure prominently.

That was no different in August when the agency released its 2010 report. Nevada was listed as one of the top states for known or suspected mortgage fraud activity, along with California, Florida, New York, Illinois, Arizona, Michigan, Texas, Georgia, Maryland and New Jersey.

Among the report's highlights:

  • According to the Mortgage Bankers Association's National Delinquency Survey, Nevada had the nation's second highest residential mortgage loan delinquency rate at 12 percent, behind only Mississippi (13.3 percent). Counted were all mortgage loans that were past due, excluding those already in the foreclosure process.
  • Nevada's 28.2 percent mortgage loan delinquency rate for commercial mortgages was tops in the nation.
  • Nevada's 46.2 percent rate of serious delinquencies for subprime adjustable rate mortgages, delinquencies that are more than 90 days past due, was fourth highest nationally. Nevada trailed only Florida (56.8 percent), New Jersey (52.7 percent) and New York (51 percent).
  • Nevada had 65 percent of its mortgages with negative equity, highest in the nation.
  • Las Vegas homes on average lost 4.7 percent of their value, ninth highest decline among the nation's major cities. Las Vegas homes lost 52.1 percent of their value from 2004 through 2010. Nationally home prices fell 1.4 percent from 2009 to 2010 and 18.5 percent from 2004 to 2010.
  • Las Vegas, along with Detroit, Atlanta and Cleveland, were identified as the only major cities where home prices in 2010 were below their 2000 levels.
  • When combining leading indicators of suspected mortgage fraud and increased risk of fraud, Nevada had a score of 61, third highest in the nation behind Florida (100) and California (94).   
  • The FBI's Las Vegas field division had 292 pending mortgage fraud investigations, most in the nation. Many of these investigations were tied to Operation Stolen Dreams, a national crackdown on mortgage fraud.
  • The Las Vegas field division also filed 1,902 suspicious activity reports related to suspected mortgage fraud, 10th most in the nation. The Los Angeles field office led the way with 10,391 reports.
  • Risk analysis firm Interthinx of Agoura Hills, Calif., was quoted as ranking Nevada as the top state for possible fraudulent activity based on submitted mortgage loan applications. Interthinx concluded that the states with the highest levels of mortgage fraud risk correlate closely to the states with the highest levels of foreclosures and under water borrowers.

This is what the FBI has to say about mortgage fraud perpetrators:

"Mortgage fraud enables perpetrators to earn high profits through illicit activity that poses a relative low risk for discovery. Mortgage fraud perpetrators include licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives and trust account representatives. There have been numerous instances in which various organized criminal groups were involved in mortgage fraud activity. Asian, Balkan, Armenian, La Cosa Nostra, Russian and Eurasian organized crime groups have been linked to various mortgage fraud schemes, such as short-sale fraud and loan origination schemes.

"Mortgage fraud perpetrators have a high level of access to financial documents, systems, mortgage origination software, notary seals, and professional licensure information necessary to commit mortgage fraud and have demonstrated their ability to adapt to changes in legislation and mortgage lending regulations to modify existing schemes or create new ones."

The FBI also said perpetrators "recruit people who have access to tools that enable them to falsify bank statements, produce deposit verifications on bank letterhead, originate loans by falsifying income levels, engage in the illegal transfer of property, produce fraudulent tax return documents, and engage in various other forms of fraudulent activities. Mortgage fraud perpetrators have been known to recruit ethnic community members as co-conspirators and victims to participate in mortgage loan origination fraud."
Back in 2006, before the housing bubble burst, Las Vegas was merely lumped by the FBI into the second tier of cities most likely to suffer from mortgage fraud.

It wasn't until the 2008 report that Nevada began figuring prominently in the national rankings, coinciding with the year when the housing market began to collapse in Las Vegas.

The 2008 report highlighted Nevada as having the nation's second greatest decline in housing prices that year, 26.46 percent, trailing only California (26.92 percent). Interthinx that year also ranked Nevada tops in the nation as the most likely place to have fraudulent mortgage loan applications. The Mortgage Bankers Association also placed Nevada at the head of the list for delinquent loans.

Nevada in 2008 also had 7.29 percent of its households in some stage of foreclosure, highest nationally. Among cities, Las Vegas was second nationally with 8.89 percent of its households facing foreclosure, trailing only Stockton, Calif. (9.46 percent). There were 67,223 housing units that had foreclosure filings in Las Vegas that year.

Nevada also had the 6th greatest increase in reported fraud-related activity, a jump of 9.85 percent, with Nebraska leading the way (14.33 percent).

By 2009 Las Vegas took over the nation's top spot among cities with a housing price decline of 20.6 percent. The FBI stated: "Rapid contraction in the economy in addition to deteriorating labor markets, large inventories of unsold homes, and increasing foreclosures and defaults have contributed to the continued decline in home prices in 2010."

It was also in 2009 that Nevada emerged as a popular state for property flipping, which is often tied to illegal activity because it can involve a perpetrator artificially inflating the value of a home and then profiting from a quick sale. Nevada experienced 715 housing flips within a 30-day period between property transactions, exceeded only by Florida (2,515), California (2,426), Arizona (968) and Ohio (885). For 60-day flips, Nevada with 1,286 ranked 4th behind California (6,339), Florida (2,789) and Arizona (1,750).

Nevada in 2009 also led the nation with a 700 percent increase in the number of investigations opened by the U.S. Department of Housing and Urban Development. Interhinx again ranked Nevada number one as the most popular place for possible fraudulent loan activity and rated Las Vegas as having the nation's 3rd greatest mortgage fraud risk among cities. Reno ranked 6th on the same list.

Las Vegas in 2009 also led the nation with 12.04 percent of its housing units having received foreclosure notices.

And the FBI had this to say about builder bailout schemes and condo conversions: "FBI reporting indicates that corrupt real estate developers are conducting condominium conversion bailout schemes to encourage the sale of properties by offering incentives such as cash back at closing, payments for mortgage and homeowner's association fees, assistance with locating tenants, and property management services.

"However, corrupt developers are concealing these incentives from the mortgage lenders, and the properties often result in foreclosure because property management companies fail to make the mortgage payments. This significantly impacts the losses sustained by lenders who are financing the over-valued condominiums and property owners living in the surrounding neighborhoods. This fraudulent activity is a type of builder bailout scheme that is emerging nationwide with most of the activity occurring in states with high foreclosure rates, including Arizona, Florida, Illinois and Nevada."

Nevada was also identified by the FBI in 2009 as one of eight states where victims were suckered into paying advance fees to "perpetrators espousing themselves as ‘sovereign citizens' or ‘tax deniers' who promise to train them in methods to reduce or eliminate their debts. While they also target credit card debt, they are primarily targeting mortgages and commercial loans, unsecured debts and automobile loans."

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