Latest Trends in
Mortgage Fraud
Fernando Ramos, ASAC
HUD Office of Inspector General
Tampa, Florida
Intro/Topics of
Discussion
Changes in the FHA
FHA Fraud Trends and Schemes
Reverse Mortgages
 Flipping

Enforcement Efforts - Remedies
Changes in the FHA
In the early 90’s, FHA had 15% of the
home purchase market
By 2006, FHA’s market share had been
reduced to 3%
Currently, FHA’s market share is +30%
Increased FHA loan limits nationwide,
over $300,000 in Florida for single
family unit
Changes Continued, FHA
Annual Totals
2007: 580,813 FHA Loans
2008: 1,467,252 FHA Loans
2009: 2,022,150 FHA Loans
2010: 1,623,934 FHA Loans
2011: 1,150,724 FHA Loans
2008 to Present: 6,561,776 FHA Loans
FHA Limits
• Hillsborough County
• Orange County
• Duval County
• Palm Beach County
• Monroe County
$290,000+
$350,000+
$387,000+
$420,000+
$700,000+
Reverse Mortgage/HECM
People over 62 convert portion of their equity
into cash, credit and employment are nonissues
No repayment until the borrower no longer
uses the home as their principal residence
HECM can be used to purchase a primary
residence
Maximum insurance amounts exceed
$600,000.
HUD has insured 380,000 HECM’s since
2008
HECM Frauds-False
Mortgage Payoff
Perpetrator creates a fake mortgage
company and “lends” funds to the
borrower (no money changes hands but
the paper is filed with the recorder).
The subject refinances the borrower into
a HECM. At closing, the title co. pays
all debts to include the fake mortgage.
HECM Fraud-Annuity
Financial professionals fraudulently
convince HECM borrowers to invest
proceeds in a financial product, such as
an annuity.
The financial professionals receive
increased fees and divert mortgage
pay-outs.
HECM FraudUnauthorized Recipient
Individual, often family members, may
keep HECM payments after the
authorized recipient dies or permanently
leaves the residence, ie. Nursing home
or assisted living.
Palm Beach County loan officer sentenced in
reverse mortgage fraud
John Incandela, 25, of Palm Beach, was sentenced
by U.S. District Court Judge William P. Dimitrouleas
in Fort Lauderdale to 41 months in prison, three
years of supervised release and ordered to pay more
than $1.9 million in restitution, according to a news
release from the U.S. Department of Justice.
“Flipping”
"This change in policy is temporary and will have very strict
conditions and guidelines to assure that predatory practices are
not allowed," Donovan said.
In today's market, FHA research finds that acquiring,
rehabilitating and the reselling of these properties to prospective
homeowners often takes less than 90 days. Prohibiting the use
of FHA mortgage insurance for a subsequent resale within 90
days of acquisition adversely impacts the willingness of sellers
to allow contracts from potential FHA buyers because they must
consider holding costs and the risk of vandalism associated with
allowing a property to sit vacant over a 90-day period of time.
“Flipping, Continued”
The policy change will permit buyers to use FHA-insured
financing to purchase HUD-owned properties, bank-owned
properties, or properties resold through private sales. This will
allow homes to resell as quickly as possible, helping to stabilize
real estate prices and to revitalize neighborhoods and
communities.
"FHA borrowers, because of the restrictions we are now lifting,
have often been shut out from buying affordable properties,"
said FHA Commissioner David H. Stevens. "This action will
enable our borrowers, especially first-time buyers, to take
advantage of this opportunity."
Waiver was recently extended until February 1, 2013
Property Flipping
Investor buys & sells property on same
day or shortly thereafter
Second sale has questionable appraisal
Second buyer prepares false
documents in order to qualify
Second sale goes into default
Creates artificial market/high property
taxes/losses to govt. and lender
Department of Justice
FOR IMMEDIATE RELEASE Tuesday, April 17, 2012
Loan Officer Pleads Guilty for Role in Mortgage Fraud
Scheme That Resulted in More Than $6.5 Million in
Losses
Curbelo admitted that he conspired with others to create and
submit false and fraudulent Federal Housing Administration
(FHA) mortgage loan applications and accompanying
documents to a lender on behalf of the unqualified borrowers.
Curbelo and others offered the borrowers cash back after
closing as an incentive for them to purchase the units. These
payments were not disclosed properly during the loan
application process. According to court documents, the closing
costs were paid on behalf of the borrowers by interstate wire.
After the loans closed, the unqualified borrowers failed to meet
their monthly mortgage obligations and defaulted on their loans.
Appraisal Fraud
Does not look at previous sales
Comparables are used for multiple files
Figures are backed into contract price
Pictures vary widely from comparables
House appraised “as is” when contingent
upon stipulations
Appraising house you own by hiding
ownership
Appraiser’s ID Theft
Administrative Actions
Program Fraud Civil Remedies Act:
• Double damages not to exceed $150,000;
• Up to $7,500 penalty for each false statement;
• Handled by HUD attorneys
False Claims Act:
• Treble damages;
• Up to $11,000 Penalty for each false statement;
• Handled by DOJ Civil (parallel proceedings)
Administrative Actions, cont.
Debarments and suspensions- usually after judicial action taken
against Subject/Entity. These are government wide, i.e., no
business allowed with any federal agency; Posted on Excluded
Parties List Government Wide;
Limited Denial of Participation (LDP) – Agency specific, i.e.,
HUD only;
Civil Money Penalties- FHA Commissioner is authorized to
initiate CMP’s against various mortgagers with varying fee limits;
Mortgagee Review Board- headed by the FHA Commissioner,
can take following actions: letter of reprimand, probation,
suspension and removal from the mortgage insurance programs
Federal Mortgage
Statutes
18 USC 1010, False statements to HUD (Felony) (2
years)
18 USC 1012, False statements to HUD
(Misdemeanor) (less than one year)
18 USC 1341 (Mail Fraud) 20 -30 years depending if
the act impacts a financial institution; can be intrastate
18 USC 1343 (Wire Fraud) same as above (must be
interstate or international)
18 USC 1344 (Bank Fraud) 30 years
Non-Traditional
Mortgage Fraud
Statutes
18 USC 1028 (Fraud and related activity
in connection with I. D. documents)
42 USC 408 (Misuse of SSN)
Investigative Techniques
Working our way up:
Use of straw-buyers
as cooperating informants
DOJ wants our focus on
Real Estate Professionals
Investigative Techniques
cont.
Use of Task Forces
as force multiplier:
We work with FBI; Secret
Service; Postal OIG; SSA;
and many other Federal
and State Agencies as well as
Industry Professionals
Investigative
Techniques cont.
Covert Operations:
Consensual Monitoring
Under Cover
Confidential sources
Cooperating subjects
Enforcement Efforts
Operation Malicious Mortgage, June,
2008
Operation Malicious Mortgage II, June
2009
Operation Stolen Dreams, June, 2010
HUD OIG Hotline
1-800-347-3735