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Cooking the Books Workbook UNDERSTANDING THE BASICS OF MORTGAGE FRAUD UNDERSTANDING THE BASICS OF MORTGAGE FRAUD TABLE OF CONTENTS INTRODUCTION Learning Objectives ............................................................................................................................................. 1 A Short History Lesson ....................................................................................................................................... 1 Evolution to Today .............................................................................................................................................. 1 Reform from the Great Depression.............................................................................................................. 1 Secondary Market Influence ........................................................................................................................... 2 Loan Market Offerings ................................................................................................................................... 3 The Evolution of Mortgage Lenders ............................................................................................................ 4 The Evolution of Mortgage Brokers ............................................................................................................. 5 Regulations and Regulators in the Mortgage Industry ............................................................................... 5 Factors Affecting Mortgage Fraud Today ........................................................................................................ 6 The Business of Commission ........................................................................................................................ 6 Lender Competition ........................................................................................................................................ 6 Alt-A Loans ...................................................................................................................................................... 8 Loan Volume .................................................................................................................................................... 8 Subprime Market Implosion .......................................................................................................................... 8 Predatory Lending ......................................................................................................................................... 10 Technological Advances ............................................................................................................................... 11 Criminal Statutes ............................................................................................................................................ 11 The Mortgage Fraud Problem Today .............................................................................................................. 11 Suspicious Activity Reports .......................................................................................................................... 12 Geographical Hot Spots ............................................................................................................................... 12 Other Reports ................................................................................................................................................. 12 Foreclosure Hot Spots .................................................................................................................................. 13 Actual Loss Due to Mortgage Fraud .......................................................................................................... 14 Related Costs .................................................................................................................................................. 14 Industry Reaction to Mortgage Fraud ............................................................................................................. 15 Federal Legislation ......................................................................................................................................... 15 State Legislation ............................................................................................................................................. 15 Federal and State Regulators ........................................................................................................................ 16 Secondary Market Investor Reaction .......................................................................................................... 17 Industry Partner Actions .............................................................................................................................. 18 Mortgage Fraud in the Future .......................................................................................................................... 18 A Stabilizing or Decreasing Real Estate Market........................................................................................ 18 Adjustable-Rate Mortgages and Non-Traditional Loan Resets .............................................................. 19 Foreclosures Are on the Rise ....................................................................................................................... 19 A Shrinking Secondary Market .................................................................................................................... 19 Conditions are Ripe for Future Mortgage Fraud ...................................................................................... 20 Chapter Summary ............................................................................................................................................... 20 Review Questions ............................................................................................................................................... 21 THE LIFE CYCLE OF A MORTGAGE LOAN Learning Objectives ........................................................................................................................................... 23 Introduction ........................................................................................................................................................ 23 Property Seller ..................................................................................................................................................... 23 Mortgage Fraud -i- UNDERSTANDING THE BASICS OF MORTGAGE FRAUD THE LIFE CYCLE OF A MORTGAGE LOAN (CONT.) Individual Home Owner ............................................................................................................................... 24 Builder or Developer ..................................................................................................................................... 24 Manufactured Housing Dealer..................................................................................................................... 24 Real Estate Investor ...................................................................................................................................... 24 Bank-Owned Real Estate .............................................................................................................................. 25 Expectations of a Property Seller ................................................................................................................ 25 Fraud Trends – Property Sellers .................................................................................................................. 25 Real Estate Listing Agent .................................................................................................................................. 26 Licensing and Regulation .............................................................................................................................. 26 Expectations of a Real Estate Listing Agent ............................................................................................. 27 Fraud Trends – Real Estate Listing Agents ............................................................................................... 27 Borrower .............................................................................................................................................................. 27 Straw Borrower .............................................................................................................................................. 28 Identity Fraud Victim .................................................................................................................................... 29 Accomplice ..................................................................................................................................................... 29 Expectations of a Borrower ......................................................................................................................... 29 Fraud Trends – Borrowers ........................................................................................................................... 30 Real Estate Buyer’s Agent ................................................................................................................................. 30 Fraud Trends – Real Estate Buyer’s Agents .............................................................................................
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