A market ripe for bad behavior
WASHINGTON — In an ironic twist, there are signs that the wreckage from the housing bust may be reigniting dubious real estate schemes and fraud. According to researchers:
• Property flippers are back in places like South Florida and Las Vegas, where condo prices crashed but are now seeing some appreciation again.
• "Floppers" are defrauding banks by hijacking short sales at prices below what legitimate purchasers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to convince banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary home buyers and split the quick profits.
• Creative "credit enhancement" companies are "renting" investors the bank account balances they need to demonstrate to lenders that they have the finances to qualify for a mortgage. The accounts are for real, but they don't belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits — which are in reality fraudulent subaccounts — they are told the money is in the name of the loan applicant.
• Investors are hoodwinking lenders into giving them low down payments and interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling just a fib, but in reality it's bank fraud.
To Ann Fulmer, a former white-collar crime prosecutor who is now a vice president with mortgage fraud analytics company Interthinx, the market conditions are ripe for a reprise of some of the worst behavior of the boom and bust. Her firm's latest study of mortgage fraud nationwide, covering loan origination and other data from the third quarter, found that applicants' dishonesty about their employment and income was up 9 percent from the same period the year before, and a stunning 50 percent from the third quarter of 2009. The reason: Borrowers increasingly are falsifying W-2s and other records to meet the tougher debt-to-income thresholds lenders adopted after the recession.
Interthinx works with major mortgage lenders to spot fraud and has access to vast loan application databases, credit bureau data and other information, and runs it all through proprietary models to establish estimates of fraud risk.
For the sixth straight quarter, the states that Interthinx ranked riskiest for mortgage fraud are the same that experienced the most explosive booms and the most crushing busts between 2004 and 2008: Nevada, Arizona, California and Florida. California accounted for half of the 10 highest-risk metropolitan areas in the recent rankings. Miami-Fort Lauderdale and Cape Coral-Fort Myers are high on the list as well.
Kenneth R. Harney can be reached at email@example.com.