Mortgage Fraud: Now on the FBI’s Less-Wanted List: Posting IV and Conclusion

Mortgage Fraud: Now on the FBI’s Less-Wanted List: Posting IV and Conclusion

(By Joe Koletar and Daven Morrison) (See three previous posts for more on this subject.) We suspect that many factors drove the FBI’s decision to reduce the priority of mortgage fraud investigations; we are exploring five of those possible factors in this series of posts. The fifth factor is that white collar crime such as mortgage fraud is largely a diffused problem. From the FBI’s viewpoint, dealing with a major drug cartel or national organized crime family can be daunting in itself. They are big targets requiring substantial effort, but at least they are single targets. Mortgage fraud tends to occur in many small pockets. Three or four people here or there run it, but there is no national or international organization behind them. That makes the targeting more difficult. Investigations must be built piece-by-piece in almost every area of the United States.

Given these realities, what could go through the mind of a person scheming to commit mortgage fraud? Obviously, the fraudster would feel like the proverbial pig in mud: absolutely delighted! What’s more fun for someone set out to break the rules when they know no one is watching? Or even if they are spotted, they will likely never commit a crime that will rise to the level to be prosecuted. The preventive function of our criminal justice system thus becomes blunted. The issue for our society is that while the perpetrators might “get away” with it, others will indeed be adversely impacted by this “ethic.” Realtors, bankers, and guess who else: The property-buying public! How many families have either lost their homes due to the frauds committed without their knowledge? How many families are relegated to continuing rental arrangements due to the challenges of obtaining mortgages as a result? The economic damages are not as dramatic as the results of physical violence and terrorism, but they are significant.

And what of those mortgage applicants seduced into dishonest gaming of the system? One of us (Morrison) worked with an organization immersed in this marketplace on the eve of the mortgage fraud crisis. This organization was ethical by all accounts and was appalled and alarmed by the methods used to recruit and push applicants into mortgages they could not afford using forms they didn’t understand.

And that brings us to the next question: How big might a bad crop become? Our book, A.B.C.’s of Behavioral Forensics (Wiley, 2013), characterizes fraud perpetrators and enablers as singular (“bad apples”), groups or organizations (“bad bushels”) and bad populations (“bad crops”). What do you think? How big was the bad crop that brought the U.S. financial system to its knees? And given the scope of the impact, what are your thoughts about the FBI’s downgrading mortgage fraud as an investigative priority? The perpetrators of these crimes may be small operators and harder to target, but the aggregate financial impact of their fraudulent tactics is immense in our economy. That is why we question the prudence of the FBI’s downgrading, even though we may understand it.

What was going on with these mortgages? Or more importantly, what was happening between these people? That is the kind of question we address in our book. One nice set of tactics was compiled by Grazioli and referred to in the book. They include masking, dazzling, decoying, repackaging, mimicking, and double-play. Check our book to see them explained. It’s likely that a combination or even all of these tactics are used by mortgage fraud perpetrators. No oversight was requested because everyone (except the home owner) was getting rich. And any post-crime investigation became limited due to resource constraints, shifting priorities, laws needing updating, and the challenges of finding targets warranting the costs of investigation. Meanwhile, the CDO market was like a gluttonous beast requiring more and more mortgage sales to sustain itself. Their quality, as it were, really didn’t matter. In that environment, a tube of toothpaste could practically serve as a mortgage on the market.

What’s the likelihood that it is happening today—or will happen tomorrow? And what will the FBI’s priorities be at that point?

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