Does mortgage fraud pay?
Does anyone else have any insights as to what the incentives are for committing mortgage fraud rather than other types of theft? From what I understand mortgage fraud requires collusion from so many parties (e.g. appraisers, realtors, escrow agents, straw buyers, etc), and leaves such a paper trail that getting caught once the place goes into foreclosure is almost assured.
Why then would anyone want to commit mortgage fraud and wind up going to jail when you can just put on a ski-mask and hold up a convenience store with little chance of ever being tracked down? There are just so many other lucrative forms of crime around: you could hi-jack trucks or break into computers for identity theft, to just name a few.
In short, mortgage fraud is so messy and leaves so many tracks that it would be easy for law enforcement to track you down.
Or am I just missing something here?
Why then would anyone want to commit mortgage fraud and wind up going to jail when you can just put on a ski-mask and hold up a convenience store with little chance of ever being tracked down? There are just so many other lucrative forms of crime around: you could hi-jack trucks or break into computers for identity theft, to just name a few.
In short, mortgage fraud is so messy and leaves so many tracks that it would be easy for law enforcement to track you down.
Or am I just missing something here?
Comments
Jillayne has a great series on the ins and outs of fraud.
She identifies 3 types of fraud:
1) Fraud for Property (motive is pretty obvious) - liar loans are the obvious example.
2) Commission Fraud - misrepresentation by originator to get commission (again motive is pretty obvious).
3) Fraud for profit - this sounds like what you are thinking of in this post. This could net someone hundreds of thousands of dollars. Is it worth it? Should you just stick up a seven eleven for 40 bucks instead?
My guess is that armed robbery generally garners a stiffer sentence, without nearly as lucrative reward, than mortgage fraud. Plus you are taking a chance on getting shot. I think I'd pick mortgage fraud over armed robbery any day.
When the market was going up 20%, foreclosure wasn't a foregone conclusion, so to speak. I could see someone justifying it as a victimless crime.
As long as prices were going up.
Are you saying that fraud (when it occurs) isn't always discovered when homes go into foreclosure? Wouldn't it always be discovered when a straw buyer had been used to acquire a home at inflated prices when a home goes into foreclosure? For one thing, the unsuspecting owner will scream to the bank about how they have been victimized.
Even if it's suspected, I can imagine it would be hard to prove.
One person's fraud is another person's stupidity.
Also, who's going to investigate? There is little money for regulators. We've gutted regulation and enforcement in this country in some misguided belief that government regulation and enforcement only hinders capitalism.
True. However, Casey was more of the personal variety of mortgage fraud which didn't require getting a conspiracy of people together, and sucker to be the buyer. I am sure that the number of people who lied on their mortgage applications in the last few years are legion.
The fraudsters I don't understand are the ones who actually worked as a team, with appraisers, realtors, etc, and split the proceeds, letting some sap buyer wind up (unknowingly) with a home in foreclosure. I just can't understand why people would commit that kind of fraud. Not that I don't understand the profit/greed incentive. It just seems terribly risky since you are leaving some agrieved party who is going to complain and identify the culprits.
The ringleader could be a real estate agent or sometimes is a mortgage broker (who then locates a desperate/new real estate agent.)
You've reminded me that I need to continue my mortgage fraud series. I'll outline a very juicy case study that happened in WA state. Stay tuned.
Meanwhile, my phone is ringing off the hook from 5AM to midnight now, from loan originators who have all waited until the last minute to take their required continuing ed and their test. They are starting to sound real panicky.
Maybe I should raise my prices. LOL.
It's the kind of very high, strong, self-confidence you see in successful professional atheletes, except the mortgage fraud ringleader's purpose is immoral.
So, to answer sniglet's question, it's a bit of a high. Think about a person with an addiction problem. They might be able to kick the addiction, but the addictive personality remains and they still crave the high they get from experiences of living on the edge.
Apologies: Psych Grad School; one more quarter. Wish me luck on getting my thesis approved; I'm almost done!
I guess that's the kind of analysis you get when you mix a psych/philx/ethics major with mortgage lending.
I eagerly await your continued series.
Definitely raise your rates - you're nearly a Dr.!
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So, to answer the original question: how often are these ringleaders caught?
Do they get longer or shorter sentences than some dude sticking up a 7-11 for $40?
In answer to b's question regarding how often they're caught, remember, this is only one person's perspective. I believe that the government will never have enough resources to go after every single egregious case that crosses their path, which is one of the reasons why you constantly see me cheering for industry self-regulation. Government resources are reserved for the worst of the worst cases and then, if it looks like we're talking about any activity that crosses state lines, they turn it over to the FBI, which is HUD's enforcement arm. The FBI definitely will go after the biggest of cases.
It's a utilitarian way of thinking: We maximize the resources we DO have by spending our time going after the people who are harming the greatest number of consumers.
In terms of what they get, well let's just say that if you hold a license such as a state issued license to practice real estate, escrow, appraisals, and so forth, the judge holds that person to a higher standard than your average armed 7-11 thief that came from tough circumstances such as coming from a family that lived in a van down by the river.