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Burning Down the House: Mortgage Fraud and the Destruction of Residential Neighborhoods

NCJ Number
Date Published
28 pages
This paper examines the nature, scope, and adverse impact of mortgage fraud, as well as what is being done to detect, prosecute, and prevent it.
Although there are an unlimited variety of mortgage fraud schemes, they are generally classified as either fraud-for-profit or fraud-for-housing. The objective in a fraud-for-profit scheme is to obtain residential mortgage loan proceeds and/or physical and legal control of residential properties. Lenders and law enforcement agencies have traditionally focused on for-profit schemes because they involve organized rings, industry insiders, multiple properties, and millions of dollars in losses. In fraud-for-housing schemes, the objective is to obtain a loan that would have been made on materially different terms, or would not have been made at all, had the lender known the truth about the borrowers' financial condition. Such mortgage fraud schemes have largely been ignored because of the industry belief that they involved a small percentage of individual borrowers who were providing false information that would enable them to buy houses they believed they could afford, i.e., until the "mortgage meltdown." Mortgage fraud is not only costly to lenders because of defaults on mortgage payments and severely depreciating real estate market values, but also undermines the quality of the housing and the occupants of neighborhoods significantly impacted by widespread mortgage fraud. Abandoned and derelict properties left by mortgage defaulters attract squatters and thieves. It is essential that mortgage fraud leading to defaulted loans be prevented. This requires the establishment of a mandate that all loans be thoroughly screened for fraud before they are funded. In addition, clear and specific laws must be crafted to define and criminalize fraudulent conduct. Law enforcement personnel must then be trained and supported in detecting and building evidence in mortgage-fraud cases. 3 figures and 93 notes

Date Published: January 1, 2010