The Forgotten

Fraud

A post-crisis review of

mortgage fraud and

where the industry is today

Linda Settle

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1 TABLE OF CONTENTS

2 Executive summary ........................................................................................................................ 2

3 Mortgage Fraud 101 – the basics and common fraud schemes ..................................................... 3

4 The Regulatory Response .............................................................................................................. 9

5 Mortgage fraud today ................................................................................................................... 13

6 Mitigation Strategies ..................................................................................................................... 18

7 Conclusion .................................................................................................................................... 21

8 Works Cited .................................................................................................................................. 22

This paper will include references to some of my personal experiences

investigating mortgage fraud while leaving out names in an effort to protect

the privacy of those individuals. It will also include my personal opinions –

these are not intended in any way to represent those of my employer.

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Cover design by Gary Settle

iStock photo by Getty Images

CAMS – FCI Paper

2 EXECUTIVE SUMMARY

Although the worst of the recent mortgage crisis appears to have passed, the residual effects are still

being felt in many areas of the country and the industry itself. Many articles and books were published

about the crisis – the causes, the victims and those responsible. Movies have been produced that

condensed the drama of those events into a couple of hours that took years to live through. But the

fallout and damage lingers longest with those whose homes and dreams were lost. These traumatic

events will haunt them for years to come. Because of the crisis, government regulators have stepped

in with a long list of new regulations and requirements in an effort to hold the industry more accountable

and prevent the abuses that contributed to the crisis. This is not intended to assign blame – there is

plenty of that to go around for all industry participants. This is not even to identify and address all of the

contributing factors that led to the crisis. But every account will assign some level of fault or blame on

the underlying fraud that was rampant and at the center of so many of the transactions.

There are signs that some of the same issues are back along with some new concerns. This paper will

present information regarding the fraud schemes that were so prevalent in the run up to the financial

crisis and the fraud concerns today. It will also provide some detection strategies and best practices to

mitigate the risks, as well as suggestions for enhanced due diligence related to these issues.

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3 MORTGAGE FRAUD 101 – THE BASICS AND COMMON FRAUD SCHEMES

The following discussion will help the reader understand how the fraud that fed the crisis happened.

We will review the scenarios and methods most frequently utilized by those who manipulated the

transactions that preceded the crisis. Loan programs such as those that relied solely on the ‘borrower’

representations regarding income and assets with no verification facilitated these scams. These loans

were commonly referred to as “Stated” programs but earned the nickname “liar loans”. Then there

were the loans that did not require the information at all. These programs were known as NINAs - No

Income, No Assets – a cute acronym for a very high-risk product. Loan officers who simply filled in the

blanks with the income needed for the borrower to qualify easily manipulated these programs. I have

heard the argument that these were not really fraud – the loan officer simply selected a loan program

that would allow the borrower to qualify under the guidelines. But the program was selected because

there was no way the loan would be approved had the information been disclosed to the lender or

insurer. Comparing it to the “tree falling in the forest” – if the information that would cause a denial is

removed as a requirement – is it still really fraud? My answer is yes – because information is omitted

with the knowledge that its disclosure would have impacted the decision. The omission(s) prevented

the underwriter from making an adequate risk assessment and the result was to the detriment of the

lender and / or insurer.

The FBI defines mortgage fraud as “a material misstatement, misrepresentation, or omission relied on

by an underwriter or lender to fund, purchase, or insure a loan.”1 For many years, the FBI and the

1 United States, Federal Bureau of Investigation (FBI) Mortgage Fraud Report 2010, Year in Review,

https://www.fbi.gov/stats-services/publications/mortgage-fraud-2010

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lending industry have recognized that mortgage fraud falls into two basic categories: fraud for housing

and fraud for profit. Fraud for housing typically involves misrepresented income or employment or

some other issue related to underwriting or qualification requirements. These also are likely to include

fabricated documentation that may include bank statements or tax returns or other verification

documents. It may also include a straw buyer – typically a family member posing as the borrower

because of severe qualification issues for the actual borrower. Lenders have implemented pre-closing

reverification programs and processes designed to detect these issues prior to closing. These cases

may also involve fraud for profit if industry professionals, whose compensation may depend on the loan

closing, coach the borrowers. However, these transactions also have a characteristic that reduces the

risk somewhat – the borrower(s) want the property, they intend to live there and make the mortgage

payments. However, the risk of default is high if the borrower’s income was inflated for qualification

using a “stated” program or altered or fabricated documentation. In both cases, however, issues are

often found first in the loan application – also referred to as “the 1003”2. This is because each mortgage

transaction will include an application - a summary of the borrower’s personal information as well as

details of the transaction. It contains information such as employment and residence history; income

for all applicants; assets and liabilities; details regarding the nature of the transaction (refinance or

purchase); property and pricing information and whether the borrower intends to occupy the property

as a primary residence or use it for investment purposes.

This is also where borrowers can get into trouble because of the “fine print” that few borrowers take

time to read - just above the signature(s) is the following notice3:

2 The loan application is identified by the form number – Fannie Mae Form 1003, Freddie Mac Form #65. 3 Excerpt from the loan application Fannie Mae 1003, Freddie Mac 65.

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The borrowers make 11 agreements within this small paragraph, but for purposes of this discussion,

the first one is the most important. By signing the application, the borrowers acknowledge that all of the

information it contains is correct and that any misrepresentations, intentional or negligent, may result

in civil or criminal liability, under Title 18. The 1003 was recently updated to devote an entire page

(Section 6) to Acknowledgements and Agreements4 made by the borrower and the consequences for

misrepresenting information. Borrowers sign a final 1003 at the loan closing, which means that at the

time of closing – everything in the application is correct and the borrower is responsible for any error or

misstatement.

The Mortgage Asset Research Institute (MARI) 5 manages the Mortgage Industry Data Exchange

(MIDEX) database. Subscribers to MARI report confirmed fraud cases that other subscribers can then

access. The submitting source remains anonymous to the viewer of the information. MARI issued The

LexisNexis® 16th Annual Mortgage Fraud Report in December 2014. This report found an increase in

application fraud and misrepresentation from 2011-2013: 61 percent in 2011: 69 percent in 2012 and

74 percent in 2013.

4 Fannie Mae Announcement, August 23, 2016 – new URLA, Uniform Residential Loan Application. https://www.fanniemae.com/content/guide_form/urla-borrower-information.pdf 5 The Mortgage Asset Research Institute (MARI) is a LexisNexis® company that collects reports of “proven residential mortgage fraud and misrepresentation involving industry professionals.” Chart used with permission from MARI. 2014 is the most recent report available.

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Used with permission from MARI. The most recent year available is 2014.

Borrowers may also become involved in what could be considered a fraud for profit in a few ways – the

most common was participating as a paid straw buyer. This was common and quite lucrative with some

borrowers who were paid thousands for their personal information and participation. Another method

was using a “buy and bail” scheme. Many borrowers found themselves “underwater” during the crisis.

Property values dropped so quickly and so dramatically that many borrowers found themselves owing

far more than the properties were worth. However, many viewed the calamity as an opportunity to move

up. They could “lease” their current property and buy a bigger home for less than they owed on their

current home. Of course, the lease agreement was fabricated. After the closing – the borrower would

default on the mortgage on the previous home. However, the debt relief achieved through the new

transaction diluted the subsequent damage to their credit history.

The FFIEC issued a white paper in 20056 that provides a thorough account of the motives, methods

and participants most often engaged in mortgage fraud. It also includes a listing of the red flags for

each scheme and I will not recite those here. However, it states, in part, “… the variety of fraudulent

mortgage schemes is limited only by the imagination and resourcefulness of the perpetrators…” This

paper focuses primarily on “fraud for profit” schemes as well, but I will not list all schemes and red flags

cited by the FFIEC in the interest of space. During the crisis, mortgage brokers originated many of

these transactions. The most frequent fraud for profit schemes from the crisis are outlined below:

6 United States, Federal Financial Institutions Examination Council (FFIEC) white paper, The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third Parties, http://www.ffiec.gov/exam/3P_Mtg_Fraud_wp_oct04.pdf

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Common Fraud Schemes

Flip Sales – properties typically purchased by a Limited Liability Company (LLC) and sold within a short period - often the same or next day. These transactions are frequently combined with a paid straw buyer and an inflated appraisal. There is also an unrealistic time between acquisition and resale with insufficient time to complete any needed repairs or make significant improvements. This also typically includes an unlikely profit margin. There are legitimate flip sales where the property is purchased, repaired and resold, but these typically have normal marketing times and the values are not inflated. The key is the appraisal. The fraudulent flip requires an appraiser and a settlement agent to make it work. It was not unusual to see contracts with a Right of Assignment.

Paid straw buyer – a borrower who receives a payment to participate in the

transaction. This is very high risk from a credit perspective because the lender, insurer or investor has no information on the actual borrower and therefore, cannot make a thorough risk assessment of the file. The “borrower” listed in the documents has no interest in the property beyond the payment for their participation and may never have even seen the subject property.

Inflated appraisals – the property is overvalued to allow the borrower to obtain a larger loan amount. This is an issue for lenders, investors and insurers because the value of the collateral is intended not just to support the risk decision – it is used to mitigate the loss in the event of a default.

Non-arm’s length transactions – an arranged transaction where the participants, often industry professionals, act in collusion.

Identity theft – the use of stolen identities to facilitate flip sales or straw buyer transactions.

Affinity fraud – the worst of these originated as investment schemes in churches

and were used to facilitate flip sales, equity skimming or Ponzi schemes.

These scenarios also appeared together in various combinations. When the origination market

collapsed during the crisis – fraudsters changed their business model and shifted to foreclosure rescue

and loan modification frauds to prey on those desperately trying to keep their homes.7

The industry has also long recognized a “migration” within the industry – sort of a musical chairs for the

real estate industry. Parties who get into trouble in one company or profession or wear out their

welcome in a particular area may move to other companies, transactional roles or other geographic

locations. 8 For example, a loan officer may become an appraiser or a real estate agent, etc. This

7 United States, FBI Mortgage Fraud Report, 2009, https://www.fbi.gov/stats-services/publications/mortgage-fraud-2009 8 United States, United States House of Representative Subcommittee on Housing and Community Opportunity, Testimony of William Matthews, Mortgage Asset Research Institute, Inc. MARI is now a LexisNexis Company. MARI was a ChoicePoint service at the time of Mr. Matthews’ testimony. http://financialservices.house.gov/media/pdf/100704wm.pdf

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ability to move within the industry was facilitated by a lack of licensing requirements for some lending

professionals prior to the crisis. However, these parties may also move to transactional roles that

generate less scrutiny – for example, they may form an LLC, and become a seller focused on flipping

properties. Consider the following case from a few years ago. Similarities were noticed on multiple files

from the same mortgage broker. Additional research found the seller(s) were all LLCs and the mortgage

broker owned some of these – his loan officers owned the others. These same parties owned other

LLCs that supposedly performed repairs to the properties. The settlement statements listed some of

these same companies as third-party payees – allowing them to profit from multiple roles in the

transaction. Most of the properties were purchased within the 30 days prior to the flip sale transaction

according to the county records. The same appraiser completed all of the appraisals used to support

the sales price and the value used by the lender to determine the risk. These appraisals often contained

incorrect information or omitted information that was relevant in determining the value. The properties

had an unrealistic increase in value – sometimes three or four times the purchase price. Improvements

were typically limited to paint and carpet and did not match renovations described in the appraisal. (I

hate to be the bearer of bad news, but no matter what you see on “Flip That House” or HGTV, you

cannot expect to make $100k in 30 days just by painting the interior of a house). Most of the borrowers

in these transactions were straw buyers - paid for their participation. They did not make any down

payment or pay any funds into the transaction. They also had no intention of living on the property.

While this seems like a minor point, the high loan-to-value ratios required the owner to occupy the

property. The files contained numerous fabricated documents including rental and employment

verifications – often signed by a relative of the mortgage broker. There were even altered bank

statements. This plan needed an appraiser and a closing attorney to make it work. In most cases –

the closing attorney was the registered agent on all of the LLCs owned by the mortgage broker and his

loan officers. In some cases – it was his spouse.

This scam required the participation and cooperation of multiple industry professionals. It did not have

a happy ending for the perpetrators – the broker, loan officers, closing agent(s), and the appraiser were

all charged with a variety of offenses: bank fraud, wire fraud, mail fraud and conspiracy. Most of them

went to prison for several years. But, remember the language on the 1003? Several of the borrowers

on these transactions were also charged – at least one of them went to prison. The mortgage broker

who was the ringleader also went to prison and received the longest sentence. However, before

beginning his sentence - he set up another LLC – a “foreclosure counseling” company - supposedly to

help borrowers avoid foreclosure and stay in their homes. That company was controlled by the family

member whose name was on some of the altered documentation in the files from the previous scheme.

But mortgage fraud scams also attracted the attention of those whose motivations went beyond mere

greed and whose intentions were far more sinister. Gangs, drug traffickers and terrorists used

mortgage fraud to fund their activities9 10. It is a low risk – high reward crime of opportunity that provides

a long lead-time even if detected.

9 Frank S. Perri, “The Fraud Terror Link – Terrorists are Committing Fraud to Fund Their Activities,” Fraud Magazine, July-August 2010. http://www.fraud-magazine.com/article.aspx?id=4294967888 10 John A. Cassara, “The Symbiosis: Terror, Organized Crime and Fraud”, ACAMS Today, October 16, 2014. http://www.acamstoday.org/the-symbiosis-terror-organized-crime-and-fraud/

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4 THE REGULATORY RESPONSE

The government responded with new regulations and requirements in an effort to rein in and control an

industry that displayed an unwillingness or inability to discipline itself. These new initiatives and

requirements included the following:

SAFE Act - The successful movement of unscrupulous loan officers from company to company

or to a different state was practically eliminated by the requirements of the SAFE Act, passed on

July 30, 2008. This is an acronym for Secure and Fair Enforcement for Mortgage Licensing Act

and one of its primary objectives was to reduce fraud. Some of The SAFE Act requirements for

mortgage loan originators include (but are not limited to):

Registration (if employed by a bank) or obtain a license if employed by a non-bank

Submit fingerprints for an FBI background check

Provide 10-year employment history of their financial industry experience

Training and testing requirements, including continuing education.

The Nationwide Multistate Licensing System (NMLS)11 administers this registry. It provides a

one-stop validation resource for regulators, lenders and consumers. The Consumer Financial

Protection Bureau (CFPB) became responsible for administration and enforcement of the SAFE

Act in 2011. 12 Today – all 1003-loan applications must identify the NMLS # associated with the

loan officer.

Financial Fraud Enforcement Task Force – President Obama also established the Financial

Fraud Enforcement Task Force by signing Executive Order #13519 on November 17, 200913.

This is a multi-agency task force led by the Justice Department. Its mission includes

investigation of a variety of financial crimes, but specifically lists “bank, mortgage, loan and

lending fraud.” The results of this effort became the topic of a report from the DOJ-OIG Audit

Division in 2014 14 that challenged the results. The exact number of investigations and

prosecutions remains unclear.

FinCEN Responds – The FBI suggested enhanced industry reporting of mortgage fraud as

early as 2004.15 However, after the fallout from the crisis, the Financial Crimes Enforcement

Network finally implemented requirements for non-bank mortgage lenders and other parties in

the real estate transaction including GSE’s and title companies. These requirements have been

11 Originally, the Nationwide Mortgage Licensing System – the registry is now also a repository for other types of financial service licenses. 12United States, Information from the Housing and Urban Development (HUD) website. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/safe/sfea 13 United States, The White House, Office of the Press Secretary, Executive Order 13519 – Establishment of the Financial Fraud Enforcement Task Force – November 17, 2009. https://www.whitehouse.gov/the-press-office/executive-order-financial-fraud-enforcement-task-force 14United States, Department of Justice – Office of the Inspector General – Audit Division, Audit of the Department of Justice’s Efforts to Address Mortgage Fraud. https://oig.justice.gov/reports/2014/a1412.pdf 15 United States, House Financial Services Subcommittee on Housing and Community Opportunity, October 7, 2004, Testimony of Chris Swecker, then Assistant Director, Criminal Investigative Division, Federal Bureau of Investigation. https://archives.fbi.gov/archives/news/testimony/fbis-efforts-in-combating-mortgage-fraud

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implemented gradually, allowing the industry time to adjust to the new expectations. A table of

these requirements is shown below and we will look at each one for its potential impact.

Rule or Initiative Effective Date

Compliance Date / Ending Date

Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators (also known as the RMLO Rule)

April 16, 2012 August 13, 2012

Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Housing Government Sponsored Enterprises (GSEs - Fannie Mae and Freddie Mac)

April 28, 2014 August 25, 2014

Geographic Targeting Orders: Miami – Dade County, FL; Manhattan, NY

March1, 2016 Ending August 27, 2016 unless renewed

Expansion of the Geographic Targeting Orders Beyond Manhattan and Miami

August 28, 2016

Ending February 23, 2017 unless renewed

RMLO Rule - For the first time – non-bank residential mortgage lenders and originators

(RMLOs) were required to develop, implement and maintain an AML program and file

Suspicious Activity Reports. The industry really should have seen this requirement

coming from a mile away, and in my opinion, it was long overdue. Still, some in the

industry fought these requirements. The chart below is based on the FinCEN reports –

The SAR Activity Review – Trends, Tips & Issues for information on SARs filed related to

mortgage fraud. While I could not locate a single chart that included all of the SAR activity

pertaining to mortgage fraud – I have created a chart based on the information found in

multiple reports16. Some of the increase can be attributed to defensive filing. However, I

believe most of these reports were filed as lenders discovered fraud as they researched

and investigated the defaults of so many of the loans in their mortgage portfolios. The

lender investigations may have also been based on buyback demands from investors. I

believe the decline in the SAR filings in 2012 is related to three things: 1) completion of

the lender reviews of their legacy books of business, 2) strict underwriting on new loans

and 3) the disappearance of exotic financing options. Post crisis, the underwriting

requirements were extremely strict with little to no tolerance of any waiver from the

guidelines. Creative loan programs had disappeared. This resulted in fewer loans, of

course, but it also resulted in less fraud and fewer defaults.

16 United States, Financial Crimes Enforcement Network (FinCEN), The SAR Activity Review – Trends, Tips & Issues – Issue #10, May 2006 https://www.fbi.gov/stats-services/publications/mortgage-fraud-200; FinCEN Mortgage Loan Fraud Update (MLFU) August 2013: https://www.fincen.gov/pdf/MLF_Update_CY_2012_508_FINAL.pdf

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FinCEN SAR Activity Report(s) – Trends, Tips and Issues – Issue #10, May 2006 and FinCEN

Mortgage Loan Fraud Update – August 2013.

GSE Requirements – The GSEs were required to report suspected fraud in their

programs to the Federal Housing Finance Agency (FHFA) prior to this rule. With this new

rule, the GSEs would develop AML Programs and file SAR reports directly with FinCEN.

This would streamline the process and provide the information to FinCEN more quickly

than using FHFA as an intermediary. The GSEs have implemented their programs and

provided guidance to lenders:

o Fannie Mae – required lenders (and in some cases servicers) to report cases

regarding suspicious activities or compliance issues to Fannie Mae17.

o Freddie Mac – Freddie Mac uses similar language regarding reporting suspicious

activity to the GSE, but also emphasized and reminded their Seller / Servicers that

they “are not required to provide and must not disclose to Freddie Mac” information

related to a SAR filing or a copy of the SAR.18

17 Fannie Mae Selling Guide Announcement SEL-2014-09 issued July 1, 2014, https://www.fanniemae.com/content/announcement/sel1409.pdf; Servicing Guide Announcement SVC-2014-11 issued June 20, 2014. https://www.fanniemae.com/content/announcement/svc1411.pdf 18 Freddie Mac Bulletin – Selling and Servicing Updates – August 14, 2014 / 2014-15.

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Geographic Targeting Orders for Miami / Dade and Manhattan –– On February 7,

2015, the New York Times published the first segment of a five-part series titled, “Towers

of Secrecy – Stream of Foreign Wealth Flows to Elite New York Real Estate”19. It

describes the transaction histories and ownership, often by LLCs, of some of New York

City’s priciest and most exclusive real estate in the Time Warner Center (TWC). The

article cites information from the PropertyShark website stating that the sales of New York

City residences with price tags over $5 million total approximately $8 billion each year. It

also notes that in 2014 – “just over half of those sales… were to shell companies.”

However, the authors admitted “it took The Times more than a year to unravel the

ownership of shell companies”. Their efforts included the review of records from more

than 20 countries as well as interviews. The report details how some of these owners are

under investigation in their home countries for a variety of issues, including corruption,

fraud, etc. It is a fascinating read and well worth your time. Just over a month later, on

March 10, a joint-effort letter 20 signed by 17 organizations, including Transparency

International and Global Witness, was sent to Jennifer Shasky Calvery, then-Director of

FinCEN. They requested a repeal of the AML Program exemption for the real estate

closings and settlement industry. The Times article had put a spotlight on a gap in the

FinCEN reporting requirements. It is understandable that FinCEN wanted insight into

these transactions. There was a need to identify the individuals behind the shell

companies that purchased luxury properties in locations considered the highest risk.

FinCEN announced the GTO on January 13, 2016 (almost a year later), with an effective

date of March 1. This left the industry scrambling to implement the necessary processes

and controls to comply with the order in such a short time frame.

FinCEN issued FAQs on February 1 to help clarify their expectations. The American Land

Title Association (ALTA) then issued a Fact Sheet21 to its members that provided a crash

course in money laundering and SAR reporting. They developed forms so members could

consistently determine if a transaction was subject to the GTO and then obtain the correct

information. There was also a need to educate real estate agents and ALTA developed a

handout for them as well. In addition, they created webinars for the target areas to provide

additional information and training.

However, it was not long before information started popping up on the Internet

suggesting ways to take advantage of perceived “loopholes” in the orders. Although the

GTOs do not include mortgaged properties, I believe there are unintended consequences

resulting from the limitations of the orders and this exclusion. There are also legal opinions

that identify some of the potential weaknesses in the GTOs. As pointed out in the Law360

19 Louis Story and Stephanie Saul, “Towers of Secrecy – Stream of Foreign Wealth Flows to Elite New York Real Estate,” New York Times, February 7, 2015. http://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign-wealth-flows-to-time-warner-condos.html?action=click&contentCollection=us&region=rank&module=package&version=highlights&contentPlacement=1&pgtype=collection&_r=0 20 Letter to Jennifer Shasky Calvery, then Director of FinCEN. http://graphics8.nytimes.com/packages/pdf/20150311_towers/letter-to-treasury-on-money-laundering.pdf 21 American Land Title Association – Fact Sheet for Financial Crimes Enforcement Network Geographic Targeting Orders

for Manhattan, NY and Miami-Dade County, FL. http://www.alta.org/fincen/fact_sheet_for_financial_crimes_enforcement_network_geographic_targeting_orders.pdf

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article by Katherine Lemire22, “even a small mortgage on a property could be used to

circumvent the reporting requirements.” There are also some pricey properties available

in contiguous areas that would not be subject to reporting that could push these buyers

into other areas to avoid detection. While the GTO requires identification and reporting of

beneficial owners with 25 percent or more of an equity interest, Lemire also points out

this “leaves the door open for buyers who splinter their ownership among multiple

individuals… to avoid the 25 percent regulatory threshold.” This paper was originally

going to suggest an expansion of the areas listed in the original GTO, but FinCEN beat

me to it. FinCEN announced an extension and expansion of the order23 on July 27, 2016,

to include other major metropolitan areas such as portions of California and Texas in

addition to other areas of New York and Florida. However, I think there is another issue

also that is not addressed in the current GTOs. The orders focus on the buyer – who is

providing the money and leaves out the seller – who is getting the money.

Rich May, Acting Deputy Associate Director, Enforcement Division of FinCEN spoke

recently at the 12th Annual Counterterrorism and Financial Crimes Forum24. He noted

that the information from the GTOs could influence possible future regulations. I believe

that the order will eventually, and should be, further expanded to include transactions

involving LLCs in other high-risk areas and lower dollar amounts. I also believe it should

include information on the seller - any corporate entity (not publicly traded) or LLC.

5 MORTGAGE FRAUD TODAY

The preceding pages provide information on how mortgage fraud has affected the industry to date. We

are past the crisis and it is only human nature to want to forget bad times and unpleasant memories.

But, if you think mortgage fraud is a problem in the past – think again. The Department of Justice -

Office of the Inspector General, Audit Division, released a report in March 2014 assessing the DOJ’s

“Efforts to Address Mortgage Fraud”. This report (pg. 9) notes that origination fraud was most prevalent

in the “early to mid-2000’s”, but declined due to increased regulation and stricter lending requirements.

While mortgage fraud appears to have declined after the crisis, it is important to realize that

unscrupulous individuals will not abandon an industry the Mortgage Bankers Association expects to

reach approximately $1.6 trillion in originations this year ((MBA), June 2016)25 – at least not for long.

It would be naïve to think so. This is a warning that some will look for, and no doubt find, ways to

manipulate the system and exploit loopholes in the rules.

Mortgage professionals rely on and work closely with other experienced industry participants to meet

contract deadlines and accomplish their goals of providing a positive customer experience. Real estate

agents want to work with loan officers and closing attorneys who are knowledgeable and can address

the unique issues in each transaction. That’s just good business. However, in an industry dependent

22Katherine A. Lemire, Lemire, LLC – “Loopholes in FinCEN’s Luxury Real Estate Rules”. https://lemirellc.com/loopholes-in-fincens-luxury-real-estate-rules/ 23 FinCEN Press Release, “FinCEN Expands Reach of Real Estate “Geographic Targeting Orders” Beyond Manhattan and Miami”; “US Title Insurers Required to Identity High-End Cash Buyers in Six Major Metropolitan Areas”. https://www.fincen.gov/news_room/nr/html/20160727.html 24 12th Annual Counterterrorism and Financial Crimes Forum, held at SAS, Cary, NC – August 18, 2016. 25 Mortgage Bankers Association, (MBA), M. B. (June 2016). MBA Mortgage Finance Forecast. MBA.

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on those relationships – where does collusion begin? It would not be unusual to have multiple

transactions involving the same agents, loan officers, appraisers and closing attorneys. But you

would not expect every transaction involving the same parties to be a flip sale with a straw buyer and

inflated appraisal. That is not a coincidence – that is a business plan for a fraud scheme.

Earlier, I briefly discussed the industry “migration” in the real estate industry. Individuals in professional

roles may still move into other roles in the transaction. One of my biggest concerns is that these parties

have or will move into non-regulated roles that do not require a license – such as a seller operating as

an LLC. They may even set up multiple LLCs in the same area in an effort to avoid name matching

alerts that identify the same party across multiple transactions.

Flip sales – These have never really left the industry – but these will likely increase as mortgage

volume increases. One thing that a property flipper needs is a ready supply of properties that

can be acquired as quickly and cheaply as possible. The results of the crisis provided this –

lenders were left with an enormous volume of foreclosed properties that had to be sold. The

properties whose artificially inflated values helped fuel the crisis could now be acquired post-

foreclosure for extremely low prices and flipped again. Lenders and investors were eager to sell

off properties to cash buyers so they could get the non-performing assets off their books.

Property flips are still here – and could soon be in an area near you, if they are not already. A

few months ago, I started hearing commercials on the radio offering a free seminar where

attendees could “learn to flip properties in your area”. I did not attend this seminar and cannot

say with certainty that any methods the organizers recommended or encouraged were illegal.

However, not long after – I noticed signs popping up at intersections offering to purchase

properties and listing a phone number.

This may be legitimate, but in the buildup before the crisis, there were so many of the property

flip and straw buyer schemes that started this way that I am wary of all offers like this. Notice

that one of the signs advertised for an “apprentice”. I doubt that a prospective employer looking

to fill a position paying “$5k-$10k per month” will advertise that opening on a telephone poll at

intersections.

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Some recent cases reviewed included property transaction histories that indicate a “double flip”.

The property is acquired by an LLC after the foreclosure – then flipped the next day, or shortly

thereafter, to another LLC for a higher price – then sold a month or so later to an individual for

several times more than the original price. Both Fannie Mae26 and Freddie Mac27 include

warnings on their websites urging their seller / servicers to be cautious with these transactions

and emphasizing that it is critical to verify the appraised value is adequately supported and

correctly reported. Fannie Mae even includes a presentation on their website regarding illegal

property flipping.28 Remember, flip sales are often combined with a straw buyer. Throw in an

inflated appraisal and we are back where we started.

Marijuana-related properties and income. – Everyone is aware that a number of states have

legalized medicinal and/or recreational use of marijuana. This issue is problematic for lenders

as well as banks. Fannie Mae and Freddie Mac guidelines will not accept:

o Income from a marijuana-related business, or

o Properties that have been used in the cultivation or storage of marijuana.

Detection of marijuana-related income will be discussed in greater detail in the section regarding

automated fraud detection systems. The property issue is more difficult as there are no

databases to identify these properties and the lender must rely on an appraiser to notice the

marijuana related activity and report it. I have read one appraiser’s blog commenting on this

issue because of a lender’s instructions to photograph the activity and then stop working on the

assignment. The appraiser was concerned that photographing the activity could create a

personal safety issue. His solution was to include a notification to the property owner during the

scheduling process to remove any marijuana related items prior to his arrival.29 While I can

understand his safety concerns, this advice to the property owner prevents disclosure of an issue

to the lender that could create problems later. Like banks, lenders have an obligation to report

this activity (RMLO rule) and it is no doubt part of their AML Program. In addition, they could be

required to buy back a loan or the property could have problems often associated with grow

houses such as mold and / or mildew30.

International gift funds – It is a common occurrence for borrowers to receive a gift for the down

payment. This is especially true with first-time home buyers who may not have been out of

school and in the work force long enough to save a down payment. Fannie Mae and Freddie

Mac now allow a gift to represent all of the down payment funds required for the transaction.31

26 Fannie Mae website: published July 26, 2016: https://www.fanniemae.com/content/guide/selling/b4/1.1/02.html 27 Freddie Mac website: http://www.freddiemac.com/singlefamily/preventfraud/flipping.html 28 Fannie Mae website: https://www.fanniemae.com/content/RoboHelp/mortgage_fraud_prop_flip/player.html 29 Gary F. Kristensen, Portland Area Real Estate Appraisal Discussion, Home Appraisal Concerns Related to Marijuana Legalization in Oregon, October 15, 2015. http://www.aqualityappraisal.com/Home+Appraisal+Concerns+Related+to+Marijuana+Legalization+in+Oregon 30 Rutland Herald, February 24, 2016. Opinion – Jim Watson, Co-Owner, Coldwell Banker – Watson Realty, How legal pot affects real estate, http://rutlandherald.com/article/20160224/OPINION02/160229793/0/NEWS04 31 Fannie Mae Announcement SEL-2010-3 – Selling Guide Update, September 20, 2010, pg. 3. https://www.fanniemae.com/content/announcement/sel1013.pdf

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Today, many of these gifts are from relatives living in other countries. While the properties that

secure the mortgages are all domestic – the borrowers may not be and this transfer of foreign

funds can represent another layer of risk. This is not intended in any way to suggest any

discriminatory actions that could violate Fair Housing laws, but I believe these transactions

require additional due diligence. The transaction and the gift should still make sense whether

or not the gift funds are from another country. I believe the following issues / questions should

be answered, documented, reviewed by qualified resources and reported if needed.

o If the borrower has stable employment – high income – why don’t they have a savings

history?

o Is the amount of the gift in line with the funds required for the transaction or is it

considerably more than the amount required?

o Who is the gift donor? – the gift(s) is required to be from a family member.

o What is the country of origin for the gift funds? Are there sanctions considerations?

o Have the parties been screened against sanctions lists?

o Does the deposit history for these funds make sense?

Were the funds deposited in a single wire transfer or divided into smaller amounts

that may raise concerns.

Did the gift letter indicate the funds were coming from another country – but the

funds were deposited in cash?

Were cash deposits made at different branch locations or different bank accounts?

Is the information related to the gift funds and deposit history consistent with other

file information?

o If the funds were not deposited through a wire transfer – does the file contain information

suggesting the funds were divided between friends and family members and delivered in

cash? The file should include explanation letters from the borrower regarding large cash

deposits and you may find some of their explanations are surprising.

o Does the account information or gift donor suggest the account providing the funds was

opened or maintained solely to facilitate the wire transfer?

Lenders should incorporate these scenarios into their AML Programs and training. They should

not rely on the receiving bank’s screening programs for their due diligence. That is because the

bank receiving the funds only has part of the information. The lender has information and

documentation in their file that identifies additional information regarding the donor and the

transaction that the bank cannot possibly have. For one thing, they will have documentation that

the gift donor had the funds in their account - this could even include a bank statement for the

donor’s account.

Identity theft - I believe we will see more of these cases where victims of identity theft become

the unwitting participants in straw buyer transactions. Family members or caregivers may even

manipulate these transactions and an aging population is a prime target. For example, one has

to wonder why a woman in her 80s, whose current address is a nursing home would want to

purchase a property represented as her primary residence that has five bedrooms that are all

upstairs. When you consider that the documents are signed by a Power of Attorney … well, you

get the idea.

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New Trends and Issues – Both Fannie Mae32 and Freddie Mac 33 provide information on their

websites regarding mortgage fraud prevention. Both offer interesting and helpful information.

Fannie Mae’s Mortgage Fraud Program has posted several current fraud schemes, including the

following:

o Reverse Occupancy Scheme – properties purchased as investment properties so the

rental income can be used to qualify the borrower. These transactions appear to contain

some characteristics that could suggest potential suspicious activity based on the alert

information posted by Fannie Mae34. Some of the red flags listed include:

“First time buyers with minimal or no established credit.”

“Low income but significant liquid assets that are authenticated by bank

statements.”

“Purchasers make large down payments.”

“Ethnic commonality among the purchasers and other parties to the transaction.”

The website provides a recent example where the borrower’s income is $1,448 per month

– but the liquid assets supported by verified bank statements is $361,573. The purchase

price of the property was $1,080,000 with a down payment of $280,000. It is difficult to

imagine a scenario where this makes sense.

o Investment Club schemes – these will look like flips sales since that is the core scheme.

Fannie Mae notes these schemes are active in Georgia (Atlanta and Stone Mountain /

Decatur); Colorado (Denver); Alabama (Birmingham); and Tennessee (Cordova).

High-risk loan programs – Even after promising that the industry would never return to these

programs – the industry had presumably learned a collective lesson - some of these programs

are back again. While limited compared to their previous use preceding the crisis, a recent article

in Wall Street Journal suggests they may become more prevalent35.

o High loan-to-value ratios (LTV) - In an effort to engage the millennial market and

encourage them to buy homes, many lenders are now offering 97 percent LTV (loan-to-

value ratio) loans. Some offer a program with as little as 1 percent down. A few even

offer loans for 100 percent of the purchase price.36

o “Lite Doc” Loan37 – offered by a community lender in New York City. These loans offer

an opportunity to low-income communities. A loophole in Dodd-Frank exempts the

program from “ability to repay” (ATR) rules. It is important for banks to serve their

32 Fannie Mae Mortgage Fraud Program - https://www.fanniemae.com/singlefamily/mortgage-fraud-prevention 33 Freddie Mac Fraud Prevention Resources - http://www.freddiemac.com/singlefamily/preventfraud/resources.html 34 Fannie Mae – Mortgage Fraud Program Alert – Reverse Occupancy, July 2016, https://www.fanniemae.com/content/news/mortgage-fraud-news-011116.pdf 35 Kristen Grind, Wall Street Journal, February 1, 2016, Remember ‘Liar Loans’? Wall Street Pushes a Twist on the Crisis-Era Mortgage. http://www.wsj.com/articles/crisis-era-mortgage-attempts-a-comeback-1454372551 36 Ben Lane, HousingWire, July 7, 2016 , Bancorp South now offers zero-down mortgages. http://www.housingwire.com/articles/37466-bancorpsouth-now-offers-zero-down-mortgages 37 Diana Olick, CNBC, June 7, 2016, Bank requires few mortgage documents: Seems like housing déjà vu, June 7, 2016. http://www.cnbc.com/2016/06/07/bank-requires-few-loan-documents-seems-like-housing-deja-vu.html

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communities and offer solutions for their under-served customers. However, the article

notes that many of the bank’s customers are immigrants who may pool their funds to

purchase a property. If all of the parties are not on the loan, then the source of the down

payment funds may be unknown to the lender. Moreover, this loan requires a 40% down

payment – so where did the money come from?

6 MITIGATION STRATEGIES

As you can see, there are many methods and opportunities for fraud in the mortgage lifecycle. Before

the crisis, these were primarily related to origination fraud schemes. During the crisis, the opportunities

shifted to foreclosure rescue and modification schemes. The best mitigation strategy is a multi-level

approach specific to your business that may include internal and external resources. Some of the

prevention and mitigation methods include:

Automated fraud detection systems – There are automated fraud detection systems that can make

identification of schemes and bad data easier. The vendors in this space provide programs to help

detect issues within individual files and provide insight into the relationships of the transaction

participants. These products review transaction information and provide alerts for the reviewer, typically

an underwriter or investigation analyst. Although I will not endorse a product, I will suggest that any

system should be flexible enough to allow the user to customize alerts – not just by weight, but also by

designing fraud scenarios where certain alerts are more likely to appear in combination. It should also

include the ability to detect income from marijuana related businesses. It should also have robust and

customizable reporting capabilities. These systems also include OFAC screening of all transaction

participants. This due diligence should also be included in the AML Program. It provides the user some

assurance and documentation that any sanctions risk is due to a post-closing event. As with any

automated system – it is only as good as the information that is provided. Be sure to require the data

entry of all transaction participants – especially the seller shown on the sales contract. One of the most

valuable alerts in preventing a flip sale suggests that the seller is not the owner of record (exact wording

may vary between vendors). But it has been my experience that this means one of two things –

recording records have not updated to reflect a recent transaction or a flip sale is about to occur.

These systems can also incorporate internal watchlists – companies and individuals already identified

as high risk through previous experience and investigation. Do you really want to continue to accept

business from parties known to have participated in previous fraudulent transactions – especially if

those transactions have already caused losses for your business?

Does the vendor have the ability to quickly develop and implement new alerts such as those to detect

income derived from a marijuana related business? The system should be adaptable so that changes

in loan programs or guidelines can be addressed with new alerts.

There should be a regular review of the scoring profile. The alerts, weights and scenarios should be

reviewed regularly and adjusted based on new schemes, emerging trends and changing risks both on

a transactional level and at a geographic market area level. This review should include feedback from

all stakeholders. However, primary ownership and responsibility for the scoring profile should reside

with a functional unit – not with an area responsible for meeting production goals.

As good as they are – automated systems should assist underwriters – not replace them. This is

because the systems intake and analyze the transaction based on data. However, sometimes – the

problem with the transaction is not in the data – it is in the documents, as noted above with the

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international gift funds. The systems can also create resource issues as high weighted alerts may fire

frequently and users may become “numb” or complacent.

However, even with shortcomings, I have said many times that it is my belief that the mortgage crisis

could have been avoided if the industry had consistently used these types of systems and heeded the

results they provided.

Internal Controls – Fraud prevention is a team effort that may include multiple departments. There

should be policies and procedures in place that outline the expectations and requirements when/if fraud

is detected. The parties involved may vary depending on your corporate structure, but may include

departments such as Underwriting, Quality Assurance, Investigations, Risk Management, Credit Policy,

Internal Audit, Loss Management, Enterprise Risk, Compliance, and Legal Counsel. Everyone has a

role to play – it should be a collaborative approach to ensure that investigation and reporting of issues

meets regulatory requirements and expectations as well as to protect the business. Depending on your

business, Underwriters are often the first line of defense. There should be processes and systems in

place to report issues to the investigative group. They have the skills and expertise to review the issues

and access to investigative tools that are not available to everyone in the organization. There is the

potential to detect fraud at various points in the loan lifecycle. For example, if Quality Assurance sees

something suspicious in a file as part of a random review – they should report it to the investigative

team to research and address issues that may be fraud related. The point is each area should have

procedures to support fraud detection efforts and they should know what to do with those cases if they

find it. These should be consistent with and support corporate policies for ethical behavior and the

Code of Conduct.

Training – Provide training for new employees as well as ongoing training for all employees who are

in roles where they may identify fraud or misrepresentations in files. There may be multiple training

methods offered depending on the size of the business. Training offered in person may be best for

small organizations that would not be feasible for larger companies. However, it should designed so

that it includes scenarios the participant may actually encounter. It also should be reviewed and

updated according to new schemes and emerging trends. Training requirements will be different based

on the employee’s role in the company. For example, underwriters or processors will need different

training than the investigative team. Encourage employees to review information and reports from

FinCEN, the FBI and the GSEs. They all have extensive information on fraud schemes that are useful

for training discussions. Attend conferences hosted by professional organizations as often as possible

and share the information with colleagues. If budgets do not allow for participation in a conference,

there is unlimited information available on the Internet from sites that focus specifically on mortgage

fraud.

Tone at the top – Management at all levels of the organization should convey a “zero tolerance”

approach to mortgage fraud. It is important that it is more than a once year email or advisory that

introduces online training. Those are necessary, to be sure, but the message from senior management

filters down to employees from their direct managers. These managers should encourage employees,

whatever their role, to escalate and report any concerns in files. Business goals should not smother

concerns regarding the quality of the business. Some employees may be reluctant to raise concerns

and hotlines can be useful for these issues.

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FinCEN - I believe FinCEN should expand its reporting requirements to all industry participants and the

GTOs should include all states – not just a few areas. The various industry participants will bring

different perspectives and expertise that could be helpful in identifying problems before they reach a

crisis level. Mortgage fraud was/is a national problem rather than a local one. While some areas may

be more likely to have the activities that triggered the FinCEN rules – mortgage fraud was everywhere

and may be again. While researching this paper – I spoke with a representative of the Idaho Department

of Finance. The department produced a video several years ago to raise awareness regarding the

mortgage fraud problem. The video is appropriately titled “Mortgage Fraud … Even in Idaho.” 38 One

may not typically consider Idaho as a hotbed for mortgage fraud, but this illustrates that if it can happen

there – it can happen anywhere. The GTO requirements should also be expanded to prevent these

activities from moving to other areas that are not subject to the rules – causing problems there as well.

38 Idaho Department of Finance, Mortgage Fraud … Even in Idaho. The link to the video is at the bottom of the page. http://www.finance.idaho.gov/

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7 CONCLUSION

On October 7, 2004, Chris Swecker, then Assistant Director, Criminal Investigative Division of the FBI

testified before the House Financial Services Subcommittee on Housing and Community Opportunity.

Looking back, his testimony read more like a prophecy,

“The potential impact of mortgage fraud on financial institutions and the stock market is clear. If

fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to

become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on

the stock market….”39

Although SAR reporting is now required, mortgage fraud SARs have declined and law enforcement

interest in mortgage fraud has waned. The 2014 DOJ – OIG audit report40 “ranked Complex Financial

Crimes as the lowest of the six ranked criminal threats within its area of responsibility, and ranked

mortgage fraud as the lowest subcategory threat within the Complex Financial Crimes category.” Could

another housing crisis happen? Yes, I believe it could. Will it have the same catastrophic proportions?

I hope not, but only time will tell. On May 6, 2016, MarketWatch published an opinion article by Michael

Brush with the chilling title, “The seeds of the next housing crisis have already been planted41.” He

cites some of the same reasons discussed here. I believe he is right although I hope we are both wrong.

Mortgage underwriting requirements and guidelines have been and continue to be relaxed. Access to

mortgage money has become faster, easier and even more anonymous. I believe some transaction

participants will return to the fraud schemes that led us into the crisis. Unscrupulous individuals will also

look for and find new ways to take advantage of changes in loan programs and processes in an effort

to manipulate lending activities. The implementation of these mitigation strategies and expansion of the

FinCEN requirements can protect financial institutions from future losses and help preserve the integrity

of an industry whose mission is to help people achieve home ownership.

The industry must remain vigilant and disciplined to prevent the buildup of issues that could develop

into the next mortgage crisis. There will be no bailouts or excuses if there is a next time.

39 United States, House Financial Services Subcommittee on Housing and Community Opportunity, October 7, 2004. Testimony of Chris Swecker, then Assistant Director, Criminal Investigative Division, Federal Bureau of Investigation. https://archives.fbi.gov/archives/news/testimony/fbis-efforts-in-combating-mortgage-fraud 40 United States, Department of Justice – Office of the Inspector General – Audit Division: Audit of the Department of Justice’s Efforts to Address Mortgage Fraud. https://oig.justice.gov/reports/2014/a1412.pdf 41 Michael Brush, MarketWatch, May 6, 2016. Opinion: The seeds of the next housing crisis have already been planted. http://www.marketwatch.com/story/the-next-housing-crisis-is-pending-2016-05-04

22

8 WORKS CITED 1 United States, Federal Bureau of Investigation (FBI) Mortgage Fraud Report 2010, Year in Review, https://www.fbi.gov/stats-services/publications/mortgage-fraud-2010 2 The loan application is identified by the form number – Fannie Mae Form 1003, Freddie Mac Form #65. 3 Excerpt from the loan application Fannie Mae 1003, Freddie Mac 65. 4 Fannie Mae Announcement, August 23, 2016 – new URLA, Uniform Residential Loan Application. https://www.fanniemae.com/content/guide_form/urla-borrower-information.pdf 5 The Mortgage Asset Research Institute (MARI) is a LexisNexis® company that collects reports of “proven residential mortgage fraud and misrepresentation involving industry professionals.” Chart used with permission from MARI. 2014 is the most recent report available. 6 United States, Federal Financial Institutions Examination Council (FFIEC) white paper, The Detection, Investigation, and Deterrence of Mortgage Loan Fraud Involving Third Parties, http://www.ffiec.gov/exam/3P_Mtg_Fraud_wp_oct04.pdf 7 United States, FBI Mortgage Fraud Report, 2009, https://www.fbi.gov/stats-services/publications/mortgage-fraud-2009 8 United States, United States House of Representative Subcommittee on Housing and Community Opportunity, Testimony of William Matthews, Mortgage Asset Research Institute, Inc. MARI is now a LexisNexis Company. MARI was a ChoicePoint service at the time of Mr. Matthews’ testimony. http://financialservices.house.gov/media/pdf/100704wm.pdf 9 Frank S. Perri, “The Fraud Terror Link – Terrorists are Committing Fraud to Fund Their Activities,” Fraud Magazine, July-August 2010. http://www.fraud-magazine.com/article.aspx?id=4294967888 10 John A. Cassara, “The Symbiosis: Terror, Organized Crime and Fraud”, ACAMS Today, October 16, 2014. http://www.acamstoday.org/the-symbiosis-terror-organized-crime-and-fraud/ 11 Originally, the Nationwide Mortgage Licensing System – the registry is now also a repository for other types of financial service licenses. 12 United States, Information from the Housing and Urban Development (HUD) website. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/safe/sfea 13 United States, The White House, Office of the Press Secretary, Executive Order 13519 – Establishment of the Financial Fraud Enforcement Task Force – November 17, 2009. https://www.whitehouse.gov/the-press-office/executive-order-financial-fraud-enforcement-task-force 14 United States, Department of Justice – Office of the Inspector General – Audit Division, Audit of the Department of Justice’s Efforts to Address Mortgage Fraud. https://oig.justice.gov/reports/2014/a1412.pdf 15 United States, House Financial Services Subcommittee on Housing and Community Opportunity, October 7, 2004, Testimony of Chris Swecker, then Assistant Director, Criminal Investigative Division, Federal Bureau of Investigation. https://archives.fbi.gov/archives/news/testimony/fbis-efforts-in-combating-mortgage-fraud 16 United States, Financial Crimes Enforcement Network (FinCEN), The SAR Activity Review – Trends, Tips & Issues –

Issue #10, May 2006 https://www.fbi.gov/stats-services/publications/mortgage-fraud-200; FinCEN Mortgage Loan Fraud

Update (MLFU) August 2013: https://www.fincen.gov/pdf/MLF_Update_CY_2012_508_FINAL.pdf

17 Fannie Mae Selling Guide Announcement SEL-2014-09 issued July 1, 2014,

https://www.fanniemae.com/content/announcement/sel1409.pdf; Servicing Guide Announcement SVC-2014-11 issued

June 20, 2014. https://www.fanniemae.com/content/announcement/svc1411.pdf

18 Freddie Mac Bulletin – Selling and Servicing Updates – August 14, 2014 / 2014-15.

23

19 Louis Story and Stephanie Saul, “Towers of Secrecy – Stream of Foreign Wealth Flows to Elite New York Real Estate,”

New York Times, February 7, 2015. http://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign-wealth-flows-to-time-

warner-

condos.html?action=click&contentCollection=us&region=rank&module=package&version=highlights&contentPlacement=1

&pgtype=collection&_r=0

20 Letter to Jennifer Shasky Calvery, then Director of FinCEN.

http://graphics8.nytimes.com/packages/pdf/20150311_towers/letter-to-treasury-on-money-laundering.pdf

21 American Land Title Association – Fact Sheet for Financial Crimes Enforcement Network Geographic Targeting Orders

for Manhattan, NY and Miami-Dade County, FL.

http://www.alta.org/fincen/fact_sheet_for_financial_crimes_enforcement_network_geographic_targeting_orders.pdf

22 Katherine A. Lemire, Lemire, LLC – “Loopholes in FinCEN’s Luxury Real Estate Rules”.

https://lemirellc.com/loopholes-in-fincens-luxury-real-estate-rules/

23 FinCEN Press Release, “FinCEN Expands Reach of Real Estate “Geographic Targeting Orders” Beyond Manhattan

and Miami”; “US Title Insurers Required to Identity High-End Cash Buyers in Six Major Metropolitan Areas”.

https://www.fincen.gov/news_room/nr/html/20160727.html

24 12th Annual Counterterrorism and Financial Crimes Forum, held at SAS, Cary, NC – August 18, 2016.

25 Mortgage Bankers Association, (MBA), M. B. (June 2016). MBA Mortgage Finance Forecast. MBA.

26 Fannie Mae website: published July 26, 2016: https://www.fanniemae.com/content/guide/selling/b4/1.1/02.html

27 Freddie Mac website: http://www.freddiemac.com/singlefamily/preventfraud/flipping.html

28 Fannie Mae website: https://www.fanniemae.com/content/RoboHelp/mortgage_fraud_prop_flip/player.html

29 Gary F. Kristensen, Portland Area Real Estate Appraisal Discussion, Home Appraisal Concerns Related to Marijuana

Legalization in Oregon, October 15, 2015.

http://www.aqualityappraisal.com/Home+Appraisal+Concerns+Related+to+Marijuana+Legalization+in+Oregon

30 Rutland Herald, February 24, 2016. Opinion – Jim Watson, Co-Owner, Coldwell Banker – Watson Realty, How legal

pot affects real estate, http://rutlandherald.com/article/20160224/OPINION02/160229793/0/NEWS04

31 Fannie Mae Announcement SEL-2010-3 – Selling Guide Update, September 20, 2010, pg. 3.

https://www.fanniemae.com/content/announcement/sel1013.pdf

32 Fannie Mae Mortgage Fraud Program - https://www.fanniemae.com/singlefamily/mortgage-fraud-prevention

33 Freddie Mac Fraud Prevention Resources - http://www.freddiemac.com/singlefamily/preventfraud/resources.html

34 Fannie Mae – Mortgage Fraud Program Alert – Reverse Occupancy, July 2016,

https://www.fanniemae.com/content/news/mortgage-fraud-news-011116.pdf

35 Kristen Grind, Wall Street Journal, February 1, 2016, Remember ‘Liar Loans’? Wall Street Pushes a Twist on the

Crisis-Era Mortgage. http://www.wsj.com/articles/crisis-era-mortgage-attempts-a-comeback-1454372551

36 Ben Lane, HousingWire, July 7, 2016, Bancorp South now offers zero-down mortgages.

http://www.housingwire.com/articles/37466-bancorpsouth-now-offers-zero-down-mortgages

37 Diana Olick, CNBC, June 7, 2016, Bank requires few mortgage documents: Seems like housing déjà vu, June 7, 2016.

http://www.cnbc.com/2016/06/07/bank-requires-few-loan-documents-seems-like-housing-deja-vu.html

38 Idaho Department of Finance, Mortgage Fraud … Even in Idaho. The link to the video is at the bottom of the page.

http://www.finance.idaho.gov/

39 United States, House Financial Services Subcommittee on Housing and Community Opportunity, October 7, 2004.

Testimony of Chris Swecker, then Assistant Director, Criminal Investigative Division, Federal Bureau of Investigation.

https://archives.fbi.gov/archives/news/testimony/fbis-efforts-in-combating-mortgage-fraud

24

40 United States, Department of Justice – Office of the Inspector General – Audit Division: Audit of the Department of

Justice’s Efforts to Address Mortgage Fraud. https://oig.justice.gov/reports/2014/a1412.pdf

41 Michael Brush, MarketWatch, May 6, 2016. Opinion: The seeds of the next housing crisis have already been planted.

http://www.marketwatch.com/story/the-next-housing-crisis-is-pending-2016-05-04