The FraudBlogger Index climbed to 1427 during the first quarter of 2009, double what it was in the first quarter last year. Already in April a federal grand jury has indicted four individuals as part of a massive “Dream Homes” mortgage fraud scheme and 24 individuals in a Racketeering Influenced and Corrupt Organizations Act (RICO) conspiracy in a mortgage fraud scheme based in San Diego, CA.  At the same time, Congress is looking to extend federal fraud laws to cover mortgage businesses and increase funding for mortgage fraud investigations.

Looking back at the quarter that was

The bad news is that is double the amount of fraud activity seen during the first quarter of 2008, according to MortgageDaily.com. The good news is that fraud activity actually declined by nearly half (49 percent) compared to the previous quarter. More than $1.5 billion in mortgage fraud cases were tracked at some point during the first three months of 2009.

Around $300 million in open fraud activity helped push Utah’s state index higher than any other state in the nation during the quarter. Rounding out the top five were Texas, Florida, Pennsylvania and Minnesota. Utah also led the nation by dollar amount of mortgage fraud   followed by Florida, Utah, Minnesota, Pennsylvania and New York.

Among the notable fraud cases brought during the first quarter were:

• A California mortgage broker who originated $1 billion in fraudulent loans throughout six states. When he was caught at the Canadian border, he had $70,000 stuffed into his boots.
• Another California broker allegedly use the social security numbers of 25 children.
• In Maryland, one mortgage broker us the proceeds from more than $30 million in fraudulent loans to pay for her $800,000 wedding.
• A bank vice president in Minnesota pled guilty to forging her husband’s name on a $200,000 mortgage.
• In Texas, a woman was sentenced to 99 years in prison for her role leading a $3 million scheme. Other family members including he husband, sister and daughter have also been indicted.
• A city councilman in Pennsylvania pled guilty to helping his daughter commit fraud.
• An executive of the Federal Deposit Insurance Corporation (FDIC) recently testified that one straw buyer was given a suitcase containing $10,000 cash in exchange for closing on an IndyMac loan.

A new quarter begins

Although the number of fraud cases declined during the start of 2009, this does not mean   law enforcement and investigators are not vigorously pursuing mortgage fraud cases. In fact, the U.S. Department of the Treasury, the U.S. Department of Justice, the Department of Housing and Urban Development, the Federal Trade Commission (FTC) and the Attorney General of Illinois announced a new multi-agency crackdown on mortgage loan modification fraud and foreclosure rescue scams in early April. The new effort will align responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities and the private sector to protect homeowners from predatory schemes and criminal fraud.

“The Criminal Division and the U.S. Attorney’s Offices are jointly committed to redoubling our efforts to uncover and prosecute fraud and abuse in all facets of the housing market – a market upon which so many American families have pinned their hopes and their futures for so many years,” said Lanny A. Breuer, Assistant Attorney General of the  Criminal Division. “I want to assure the American public that we will not rest until the tide of this criminal activity is turned.”

Within days of the announcement, 24 individuals were charged in San Diego with racketeering for allegedly participating in a mortgage fraud scheme that involved 220 properties with a total sales price exceeding $100 million. The indictment alleges that the defendants devised a scheme to defraud mortgage lenders and to obtain money and property by false and fraudulent means. Darnell Bell, the alleged leader of the group, is said to have received at least $9 million from the scheme while Stanley Gentry, a licensed real estate broker who facilitated the fraudulent purchase of property in exchange for a monthly payment of $10,000. Several real estate businesses, including the Ivy House, Inc., the Real Estate Center of Southern California, and the Real Estate Center of La Mesa, were allegedly used by the group to purchase real estate between January 2005 and April 2008 or even more recently.

“This indictment represents the largest mortgage fraud case ever prosecuted in the history of the Southern District of California,” said U.S. Attorney Karen P. Hewitt. “Although this case marks an important milestone for the U.S. Attorney’s Office, the FBI and the IRS, we have much additional investigative work ahead of us to hold accountable those individuals who engaged in similar mortgage fraud schemes throughout San Diego and Imperial counties.”

More recently, on April 22, four individuals were indicted and information was filed against a fifth person for their part in a purported mortgage payment program called the “Dream Homes Program.” According to the indictment, from 2005 to 2007 more than 1,000 investors invested approximately $70 million  with the defendants under such corporate names are “Metropolitan Grapevine LLC”, “Metro Dream Homes” and “POS DH LLC”. The indictment also seeks forfeiture of the fraud proceeds, including the $70 million. The prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia.

“The indictment alleges that the defendant used slick marketing to conceal empty promises,” explained U.S. Attorney Rod J. Rosenstein. “They convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices, while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses. The indictment alleges that there was no revenue to pay the mortgage payments. Instead, the conspirators used some of the investors’ money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves.”

It should be noted that indictments are not findings of guilt. All defendants in these cases are innocent until proven guilty in a court of law.

‘The individuals charges in this indictment have one thing in common: greed,” said FBI Special Agent-in-Charge Keith Slotter, regarding the San Diego case. “They represent precisely those who have undermined our country’s financial system perpetuating such egregarious schemes. The FBI and our law enforcement partners remain vigilant and will pursue those who engage in this type of criminal activity. The extent to which this groups of people went to defraud lenders should also serve as a warning to the public. We urge people to come forward with information of suspicious activities they may encounter when engaged in real estate and mortgage transactions.”

Funding future investigations and prosecutions

Reuters reports that the U.S. Senate is closer to extending federal fraud laws to cover mortgage lending businesses and provide more funding to federal agencies pursuing mortgage fraud investigations. The Senate bill would also create an independent commission charged with investigating the cause or causes of the current economic crisis. There is a similar bill pending in the U.S. House. To become law both houses of Congress must agree on a final version of the bill which is then presented to the president for his signature.

Senator Charles Schumer (D-NY) is also calling on the federal government to help  district attorneys across the country fight mortgage fraud. The New York Times reports Sen. Schumer is seeking federal grants totaling approximately $100 million and earmarked for the investigation and prosecution of mortgage fraud at the local level. The grants would help district attorney offices demonstrating a need for increased resources to combat mortgage scams hire specialized staff including investigators, forensic accountants and attorneys. The fighting Real Estate Fraud Act of 2009 would also create Real Estate Fraud Units that would focus exclusively on real estate crimes.

“Housing scams are a nationwide solution,” Sen. Schumer said. “Homeowners in New York and across the country have suffered for too long because of scam artists who feel they can take advantage of people without any repercussions. These fraud units will help protect homeowners from these criminals and ensure that rather than walking away from their crimes, they are prosecuted to the fullest extent of the law.”

Source [blownmortgage]

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