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Major Initiatives Financial Institution Fraud Unit

Major Initiatives Financial Institution Fraud Unit Mortgage Loan Fraud Identity Theft Counterfeit Check and Negotiable Instruments Debit and Credit Card Fraud Fast Track Cases Suspicious Activity Reports Task Forces and Working Groups Mortgage Lending

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Major Initiatives Financial Institution Fraud Unit

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  1. Major InitiativesFinancial Institution Fraud Unit • Mortgage Loan Fraud • Identity Theft • Counterfeit Check and Negotiable Instruments • Debit and Credit Card Fraud • Fast Track Cases • Suspicious Activity Reports • Task Forces and Working Groups

  2. Mortgage Lending The Mortgage Bankers Association estimates that in 2003 $3.8 Trillion in mortgage loans were generated.

  3. Mortgage Fraud Initiative • Sophisticated techniques • Data mining and analysis • Private industry cooperation • Other Governmental Agencies • Federal • State • Local

  4. FBI Mortgage Fraud Caseload • 545 pending mortgage fraud cases as of 8/31/2004 • 107% increase over two years ago.

  5. MARI TOP TEN Georgia Nevada Florida South Carolina Utah California Illinois Colorado Missouri Michigan Top Flipping States California Florida Maryland Ohio Nevada Arizona Georgia Illinois Tennessee Michigan States with Significant Mortgage Fraud Activity

  6. Number of Violations of Nationwide Mortgage Related Fraud SARS Fiscal Years 2003 – 2004 Number of SARs received Report Date: 9/23/04

  7. Dollar Losses Reported on Nationwide Mortgage Related Fraud SARS Fiscal Years 2003 – 2004 Losses in Millions In Millions Report Date: 9/23/04

  8. Number of Violations of Houston Mortgage Related Fraud SARS Fiscal Years 2003 – 2004 Number of SARs received Report Date: 9/23/04

  9. Dollar Losses Reported on Houston Mortgage Related Fraud SARS Fiscal Years 2003 – 2004 Losses in Millions In Millions Report Date: 9/23/04

  10. Strategy • Investigate, arrest and prosecute • Dismantle and disrupt organized criminal groups engaged in financial crimes • Foster partnerships and combine resources • Respond and assist local police • Use both formal Task Forces and Working Groups • Reallocate resources and personnel to better address trouble spots and maximize impact • Use technology to investigate more efficiently

  11. Strategy • Cooperate with the financial industry to identify and correct systemic weaknesses • Continue to pursue asset forfeiture and engage in asset sharing (many states have aggressive seizure laws) • Attempt to facilitate the passage of new and revised legislation • Provide training and education to both the private sector and law enforcement agencies domestically and abroad • Continue foreign initiatives in an attempt to engage organized groups in other districts

  12. Mortgage Loan Fraud “Crisis in the Making”

  13. Types of Mortgage Fraud • Fraud for Housing • Fraud for Profit

  14. Types of FraudFraud for Housing • Perpetrator is borrower • Involves single loan • Few misrepresentations • Income & property value may be altered • Down payment may be borrowed • Debt may be undisclosed • Borrower seeks housing and/or cash from loan • Borrower intends to repay • Industry professional sometimes involved

  15. Types of FraudFraud for Profit • Often an industry professional • Involves multiple loan transactions and/or institutions • Includes many misrepresentations • Participants frequently paid for participation • Borrowers sometime unaware of scheme

  16. Typical FBI Mortgage Fraud Cases • More than likely fraud for profit • Multiple transactions • Multiple subjects • Large dollar losses • Systemic fraud in the mortgage industry

  17. TYPICAL FRAUD SCHEMES • Backward Application • Air Loans • Silent Second • Nominee Loans • Property “Flips”

  18. MORTGAGE PROCESS WHAT THEY RECEIVE* Seller Purchaser Real Estate (Developer) (Borrower) Broker * Purchase * Property and * Commission Price Loan on Loan Mortgage Escrow Closing Broker Officer Agent * Commission * Handling * Settlement on Loan Fee Fee Funding Mortgage Mortgage Lender Servicer Investor * Origination * Commission * Interest For Service Fee From Loan Mortgage Title Property Property Insurer Insurer Insurer Insurer * Premium * Premium * Premium * Appraisal Fee

  19. COMMON MISREPRESENTATIONS MORTGAGE LOAN FRAUD INCOME & EMPLOYMENT • 1. Income is overstated. • 2. Length of employment • is overstated. • 3. Fictitious employment • is reported. • 4. Employment is • backstopped by • co-conspirators. OCCUPANCY • 1. Borrower intends to use • property for rental • income. • 2. Borrower is purchasing • property for another • party. • 3. Appraisals almost • always list the property • as owner occupied.

  20. COMMON MISREPRESENTATIONS MORTGAGE LOAN FRAUD ASSETS AND COLLATERAL • 1. Assets are overstated. • 2. Collateral is overstated. • 3. Collateral is nonexistent • (forged promissory notes • and Land Contracts). • 4. Collateral is stolen or • counterfeit (fraudulent • money orders). DEBT & CREDIT • 1. Borrower's debts are • not fully disclosed. • 2. Borrower's credit history • is not fully disclosed or • is altered. • 3. Borrower assumes the • SSAN# of another • person.

  21. COMMON MISREPRESENTATIONS MORTGAGE LOAN FRAUD DOWN PAYMENT • 1. Down Payment does • not exist. • 2. Down Payment is • concealed in a non- • existent Land Contract. • 3. Down Payment is • borrowed and • disguised with a • fraudulent gift letter. PROPERTY VALUE Property value is inflated to: 1. Increase the sales value to make up for no down payment. 2. Generate cash proceeds in fraud for profit.

  22. PROPERTY FLIPS • Rapid change of ownership. • Sharp increase in sales price. • Relationship between buyer & seller. • Inflated or fraudulent appraisals. • Strawbuyers used.

  23. Predatory Lending To intentionally trick or mislead individuals into borrowing funds that the borrower otherwise cannot afford or at substantially inflated rates.

  24. It Becomes Predatory Lending When ... • Charging unusually high interest rates or fees; • Lending exorbitant amounts to people who clearly lack the ability to repay; • Using fraudulent sales tactics; • Encouraging a borrower to payoff existing loans by taking out a more costly loan.

  25. Trends in Mortgage Fraud • Lower lending standards due to increased competition • More brokers originating loans • More legislation targeting predatory lending • Education of consumers

  26. OUTSOURCING • Increased originations by mortgage brokers /third parties • Mortgage Brokers are estimated to originate 70% of all mortgages • 30,000 mortgage brokerages • 500,000 individual mortgage brokers and bankers.

  27. Increase in Fraudulent Activity • Increase in the number of Suspicious Activity Reports related to mortgage fraud • Increase in the Suspicious Activity Report dollar loss attributed to mortgage fraud • Increase in mortgage fraud violations reported to FBI.

  28. Emerging Trends • Identity Theft and Mortgage Fraud • As of 6/04 the FBI had 61 cases open involving both mortgage fraud and identity theft. • Most common is appraisers.

  29. Reasons for Increase in Mortgage Fraud • Technology • Criminal groups have greater access to information to commit fraud • Proliferation of low cost/high quality computer & copying equipment • Emphasis on streamlined application and approval process

  30. HISTORICAL INVESTIGATION

  31. AMICO CASE • Father and Two Sons • Built 230 Homes in the Rochester NY Area Since 1992 • December 2000 Charged With Defrauding Over 50 Financial Institutions

  32. AMICO • AMICO JR. Using False IDs • Previously Convicted Of Securities Fraud • Multi-Million Dollar Real Estate Deals in False Name • Homes for No Money Down and Rent to Own

  33. AMICO • HOMES SOLD THROUGH: • Greedy Mortgage Brokers • Straw Borrowers • Corrupt Appraisers • Non-Existent Appraisers • Corrupt Closing Attorney

  34. AMICO • FALSE DOCUMENTS INCLUDED: • W-2s • Tax Returns • Inflated Appraisals • Large Non-Existent Down Payments • Kick Backs to Borrowers • False Blue Prints

  35. AMICO • 116 Count Indictment • 9 Subjects • $58 Million in Funding • 30%-40% of Funding Skimmed • 2/3 of the Homes Foreclosed

  36. UNDERCOVER OPERATIONS CLEVELAND DIVISION

  37. Loan officers Appraisers Accountants Title companies Real Estate Owners Buyers/Borrowers Company Owners Employees of Underwriting companies Individuals Identified CLEVELAND DIVISION

  38. Individuals Qualify • With poor credit • No $$$$$$$$ down • LITTLE or NO monthly income CLEVELAND DIVISION

  39. UNDERCOVER OPERATIONSpecifics • Investigative Techniques to be utilized: • Undercover scenarios • Sophisticated Techniques CLEVELAND DIVISION

  40. RESULTS • 23 Searches • 94 Indictments • Accountants -2 • Borrowers – 35 • Brokers - 40 • Underwriters - 8 • Appraisers – 5 • Title Company employees - 4

  41. Final Thoughts… • Rather fail with honor than succeed by fraud. (Socrates) • Crime pays or there would not be any crime. (G. Gordon Liddy) • The worst day at work is better than the best day in prison. (Unknown) • I didn’t do it. Nobody saw me do it. Can’t prove anything. (Bart Simpson)

  42. FBI ChicagoSSA Maxwell D. Marker(312) 829-4568

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