2007 The Year in Business, No. 2: Mortgage fraud allegations prompt investigations

In February, FBI Special Agent Josh Nixon confirmed that the bureau’s Springfield office was looking into myriad mortgage fraud schemes, but he couldn’t comment on specific investigations or alleged perpetrators.

“The FBI has received numerous allegations about mortgage fraud in this area, and we evaluate every allegation,” Nixon told Springfield Business Journal at the time.

Nationally, the FBI saw a 64 percent increase in the number of mortgage fraud investigations from 2005 to 2006, and the Mortgage Asset Research Institute in Virginia ranks Missouri among the top 14 states for mortgage fraud.

In March, the Missouri Department of Insurance, Financial Institutions and Professional Registration formed a task force to combat mortgage fraud schemes in the Show-Me State. Rich Weaver, deputy commissioner of the Missouri Division of Finance, leads the task force.

“We have actually spent a considerable amount of time investigating fraud cases in the Springfield-southwest Missouri area,” Weaver said. “These are pretty elaborate schemes. … A lot of people profited off this.”

Weaver said co-conspirators in mortgage fraud schemes include appraisers, mortgage brokers, real estate agents and other intermediaries who have been promised kickbacks from the illegally obtained loans.

Area real estate and mortgage officials have taken notice of disproportionately high list prices in some subdivisions and an upsurge in foreclosures, both of which are often telltale signs of mortgage fraud.

Mortgage fraud schemes are typically set into motion when a builder or seller puts a house on the market at an inflated price that’s backed up with a bogus appraisal. A buyer agrees to purchase the property, and depending on the scheme, may not be aware of the seller’s intent to defraud the lender. Buyers are sometimes conned with cash-back incentives or deferred mortgage payments.

The outcome is often foreclosure, but the bank or lending institution can’t sell the house for enough money to cover the artificially high loan.

Greene County saw more than 700 foreclosures in 2007, an approximately 70 percent increase from 2005, according to online records maintained by the Greene County Recorder’s office.

It’s unknown how many foreclosures may be tied to mortgage fraud schemes in the area. Generally, though, the foreclosure trend has been blamed on adjustable-rate and interest-only mortgages that gained popularity when interest rates dipped in 2004 and 2005. Those loans are now resetting at much higher rates. Subprime loans made to borrowers who couldn’t obtain traditional financing also have contributed to the flood of foreclosures swamping the country.

The increase in foreclosures in Greene County doesn’t begin to reflect the severity of a national crisis that’s only expected to worsen in 2008.

Earlier this month, the Mortgage Bankers Association reported that the rate of foreclosure starts and percent of loans in the foreclosure process are at their highest levels in U.S. history.