Wednesday, February 18, 2009

Bureau of Financial Investigations

Every day, it seems, there is another story about mortgage and valuation fraud somewhere in Florida or another part of the country. It's reasonable to wonder what is going on and if there is any effort to rein in the wrongdoers and bring them to justice. It's an overwhelming task, but there are several agencies in Florida stepping up to the plate. One of them is the Office of Financial Regulation and their Bureau of Financial Investigations.

Yesterday, February 17th, 2009, I had the pleasure of participating in a segment of a training program for Investigators for the Bureau of Financial Investigations, Office of of Financial Regulation. Over 60 Financial Crimes Investigators assembled for an annual three day training program. Yesterday's program consisted of an update from the Florida Attorney General's Office about their efforts to curb abuses related to mortgage lending, foreclosure rescue, equity stripping and other financial crimes along with a panel of individuals representing mortgage origination, real property appraisal and valuation, mortgage loan underwriting, real estate and mortgage closings.

It was my honor to join the panel consisting of Richard Peek, the current Vice President of the Florida Association of Mortgage Brokers, Rebecca Chase, Regional Trainer (underwriting) for MGIC, and Virginia Semon, Business Development Representative for Fidelity National Title Group. Each panelists spoke about mortgage fraud in Florida, as viewed from their particular industry's prospective.

To set the stage, our hosts Mark Mathosian, Financial Administrator for the Bureau of Financial Investigations, and Robert Rosenau, Chief, Financial Investigations, provided us with an overview of the group in the audience and their current activities. There are over 500 open investigations being worked by the investigators. About 170 of those involve mortgages or mortgage related fraud. Over 1500 consumers are directly affected by the active mortgage investigations. Last year, the investigators closed over 160 cases and collected in excess of $380,000,000 in settlements from wrongdoers.

Each of the panelists talked about their experiences with mortgage fraud; straw buyers, false verifications of employment, false statements of income, false statements concerning occupancy, payments to unrelated third parties at closing, forged W-2s, false income tax returns, requests to prepare false HUD-1s (closing statements) and countless other examples. My appraisal examples had to do with bogus comparable sales produced by builders and condo converters, along with those produced by churning. I also alerted the investigators about the practice of mortgage brokers sending mass faxes to dozens of appraisers, fishing for the "pre-comp" that fits their need for a value to close a fraudulent loan(s).

The pending impact of the Home Valuation Code of Conduct was briefly mentioned, along with the nearly universal belief that the current fraud schemes of choice seem to be Foreclosure Rescue scams and Fraudulently Negotiated Short Sales and Flips of Short Sales. Real Estate Brokers, Mortgage Brokers, Real Estate Closing Agents and Attorneys are being drawn into these schemes.

Unfortunately, the time went much too fast, and the time for our presentation ended. Most of the panel and several investigators stayed nearly one hour past the scheduled time to ask and answer questions and discuss ongoing cases. Mortgage and valuation fraud is a major problem, but there are folks interested in enforcing the law and seeing the perpetrators punished.

From left to right: Frank Gregoire, Rebecca Chase, Virginia Semon, Richard Peek, Robert Rosenau


Anonymous said...

Thank you for participating in this program and showing examples of what you see in real life.

As a forensic review appraiser, I see far too many of these schemes after the fact when the damage has already been done. It would be great to educate the underwriters and production reviewers to some of the schemes that are out there (of course they change almost daily) in order to avert some of the problems to begin with.

Diligent review appraising by appraisers who at least have the data sources and the time (and brain power) to use them is critical, but is not often allowed in this crazy market. I hope the lenders will pay attention and start to put some time and effort into the upfront quality control side of the equation as well as the back-end.

Thanks for all your efforts!