SAN FRANCISCO — Agents, appraisers, and law enforcement agents must work together to combat the rising tide of mortgage fraud in the U.S., a Federal Bureau of Investigations official said in a presentation at the National Association of Realtors convention in San Francisco today.

“Mortgage fraud is a crisis in the making,” said James “Chip” Burrus, deputy assistant director of criminal investigations for the FBI. He likened the wave of real estate loan fraud sweeping the country to the savings and loan crisis of the 1970s and 1980s that left failed companies and bankruptcies in its wake.

Burrus addressed a group mostly composed of appraisers and Realtors at a mortgage fraud presentation on the first day of the NAR convention and trade show, which runs through Monday. About 25,000 Realtors and other industry professionals are expected to attend.

“It’s important that we get together for a solution,” Burrus said. “After the savings and loan crisis, the government imposed a solution on the banking industry, and I don’t think we want that to happen here.”

Mortgage fraud is on the upswing, with the number of suspicious activity reports to the Federal Bureau of Investigation in 2004 almost triple those in 2003, according to a report the FBI released in May. Burrus said around 15,000 SARs were filed in 2004, and more than 20,000 in 2005.

According to the Federal Financial Institutions Council, up to 10 percent of all mortgage loan applications in the $3 trillion annual U.S. residential real estate market involve some form of material misrepresentation. States are taking action to counter this trend, with Georgia’s new Residential Mortgage Fraud Act having been signed into law May 5 by Georgia Gov. Sonny Perdue.

Burrus said Georgia, Nevada and Florida have the highest incidence of mortgage fraud.

According to Burrus, the FBI is fighting mortgage fraud through partnerships with mortgage brokers, real estate agents and appraisers, public database mining using intelligence analysts, business partnerships and public education. The deputy assistant director of criminal investigations said the most important of these is public education. “Speaking to local groups is the premier way of stopping mortgage fraud,” Burrus said.

The official said the identity of individuals who reported fraud to the FBI would be kept secret.

“Each and every one of you knows the bad apples in your community. It’s important for you to point them out,” Burrus said. He said the FBI’s phone number appears in the front of local phone books, “or you can call us at (202) 324-3000 and ask for the white collar crime division.”

During the question and answer period, an audience member from a small town said his efforts to enlist the FBI’s help in fighting mortgage fraud had not succeeded.

“Because we’re small potatoes, I can’t get the FBI. But this (mortgage fraud) is having a big impact on our community,” said a Realtor from a small rural town in Indiana. “When we talk to the FBI, they are concerned about Indianapolis.”

Burris acknowledged, “If it’s a single buyer on a $200,000 house, we can’t get involved. The threshold is $500,000.” He said the FBI currently has only 100 agents dealing with financial fraud. He said the agency had 206 indictments and 106 convictions in mortgage fraud cases in 2004.

Generally, mortgage fraud involves multiple loan transactions and misrepresentations, Burrus said. Common schemes involve property flips, or rapid resales, that involve an inflated appraisal, “air loans” where the property doesn’t exist and the entire application is a fabrication just to get a loan, “silent seconds,” second mortgages lenders don’t know about, and nominees, or one person borrowing in another’s name.

Some new wrinkles include the rising trend of asset rentals, Burrus said.

“These people will rent you a beach house, a certificate of deposit, things you can say you own for the purpose of getting a loan,” he said. “Once the loan is obtained, the asset is returned.”

Verification of employment services are another, similar trend. These services supply a telephone number borrowers can give lenders to call and verify their employment – spuriously.

Audience members had a variety of suggestions for curbing mortgage fraud.

“Where it (mortgage fraud) seems to stop is when the lender picks the appraiser,” said John Lynch, a Cleveland, Ohio Realtor and appraiser.

“Mortgage originators must be licensed,” said a Realtor from eastern Mississippi, drawing a round of applause from the crowd.

With regard to appraisers, the Realtor said, “I’ve been in the business 45 years and we didn’t have problems when people had to be licensed to sell real estate before becoming appraisers.”

***

Send tips or a Letter to the Editor to janis@inman.com or call (510) 658-9252, ext. 140.

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