FBI puts cost of mortgage fraud at $1 billion in 3 months

400 industry figures indicted since March

Associated Press

June 20, 2008

WASHINGTON - The FBI estimates that victims of mortgage schemes that contributed to the country's housing crisis have lost more than $1 billion in the past three months.

More than 400 real estate industry players have been indicted since March - including dozens over the past two days - in a Justice Department crackdown on incidents of mortgage fraud nationwide.

"Mortgage fraud poses a significant threat to our economy, to the stability of our nation's housing markets and to the peace of mind of millions of American homeowners," Deputy Attorney General Mark Filip said at a news conference yesterday.

Since March 1, 406 people have been arrested in the sting dubbed "Operation Malicious Mortgage" resulting from 144 cases across the country. Sixty people were arrested Wednesday alone, including in Chicago, Miami, Houston and a dozen other regions policed by the FBI.

Law enforcement officials said their stepped-up focus on mortgage cases aims to combat problems that have grown out of the risky lending practices prevalent until the mortgage market collapse started last year. Officials have identified 10 "mortgage fraud hot spots" in California, Colorado, Texas, Minnesota, Michigan, Illinois, Ohio, New York, Georgia and Florida.

To people who have committed fraud or are contemplating doing so, FBI Director Robert S. Mueller III said: "We will find you, you will be investigated and you will be prosecuted."

Those named in the cases include housing developers, mortgage lenders and brokers, lawyers, real estate agents and appraisers, said Sharon Ormsby, section chief in charge of financial crimes for the FBI.

In some cases, gang, drug and organized crime investigations have resulted in mortgage fraud cases because such schemes enable criminals to launder money, Ormsby said.

Foreclosure rescue scams, which promise to help struggling homeowners stave off foreclosure and keep their homes, also have become a major problem, officials said. Typically, unsuspecting owners sign over their homes and then find they are victims of fraud.

In separate arrests, two former Bear Stearns managers in New York were indicted yesterday, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market.

Across the country, reports of mortgage fraud have soared over the past year as the subprime mortgage market collapsed, and defaults and foreclosures rose.

Banks reported nearly 53,000 cases of suspected mortgage fraud last year, up from more than 37,000 a year earlier and about 10 times the level of reports in 2001 and 2002, according to the Treasury Department's Financial Crimes Enforcement Network.