Sen. Barack Obama, D-Ill., Tuesday proposed a sweeping set of federal reforms Tuesday to combat mortgage fraud, ratcheting up enforcement and creating a national database of brokers who have been disciplined, the Chicago Tribune reported.
Obama’s bill would increase funding for federal law enforcement programs, create new criminal penalties for mortgage professionals found guilty of fraud and require industry insiders to report suspicious activity, media accounts said.
Mortgage fraud is “robbing thousands of Americans of their dream of home ownership, and costing the mortgage industry hundreds of millions of dollars each year,” Obama said, according to accounts. “Congress needs to come to the table and do its part.”
Obama and the bill’s co-sponsor, Sen. Dick Durbin, D-Ill., said they were moved to act by a recent Chicago Tribune series on mortgage fraud, in which swindlers use high-tech identity theft and face-to-face scams to wrest control of homes, then secure hefty bank loans that go unpaid, reports said.
During the last five years, FBI reports of mortgage fraud have soared across the U.S.
Obama’s bill would authorize $10 million more for anti-mortgage-fraud programs in the Departments of Justice and Housing and Urban Development, media reports said.
It also would require the FBI to update bankers on fraudulent activity in a formal, systematic way, according to reports. Today, real estate attorneys, companies and trade groups rely on several industry Web sites that use news articles and government press releases to disseminate fraud reports from across the country.
And the bill would establish a national database of mortgage professionals who have been sanctioned by state or federal regulatory agencies, reports said.
Several features of the proposed legislation may win consensus because they previously have been embraced by real estate industry groups and law enforcement agencies.
The FBI already has called for mandatory fraud reporting by real estate industry professionals along with safe harbor from liability for those whistle-blowers. A similar system is in place in the banking industry. These features also appear in the proposed legislation, reports said.
Other aspects of the bill could be opposed by real estate and banking interests, experts told the Tribune.
One provision of the measure would strengthen the ability of fraud victims to file federal lawsuits, reports said. Individuals now must seek redress in state courts, which have more restrictive rules about information gathered during discovery, Peter J. Henning, a Wayne State University Law School professor, told the Tribune.
Henning said that could increase the liability banks and real estate companies face for their employees’ misconduct, reports said.
“I suspect there would be opposition to that provision,” Henning said.
Others wonder whether the bill fails to cover a large population of unlicensed counselors and operators who commit fraud, reports said.
“This law won’t reach people outside the mortgage lending institutions,” said California attorney Rachel Dollar.
But the growing cost of mortgage fraud — lenders suffered more than $1 billion in losses last year — has convinced many industry groups that it must be addressed somehow, reports said.
“Folks in the mortgage industry are suddenly concerned about fraud, because they’re losing money too,” Ira Rheingold, executive director of the National Association of Consumer Advocates, a group of public-interest attorneys who support the legislation, told the Tribune.
Obama’s proposed bill, written in consultation with the Treasury Department, Madigan and Chicago police, would authorize increased federal funding for mortgage counseling, reports said. It also would grant funding to the state agencies that license and monitor appraisers and other real estate professionals, according to reports.
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