Homeowner Beware: Mortgage Fraud Scams Abound

Linda McGlasson
March 31, 2010 | COMMENTS

It's been almost a year since the Financial Crimes Enforcement Network (FinCEN) issued its red flag advisory about foreclosure scams. Now it looks like the agency sees another spike in mortgage modification scams hitting the U.S.

FinCEN and other regulatory agencies have warned the financial services industry and homeowners about these scams. Now FinCEN says it has received hundreds of Suspicious Activity Reports (SARs) regarding the fraud.

In the third quarter of 2009, banks and credit unions submitted 15,697 mortgage loan fraud SARs, a 7.5 percent increase over the same time in 2008.

Now, in these SARs, the primary suspicious activities surround loan modifications dealing with occupancy misrepresentation, social security number discrepancies and altered or forged documents.

The two most common forms of borrower scams involve conning homeowners into signing quit-claim deeds to their properties. In the first scheme, scammers—once they get the homeowner to sign—sell homes out from under the former owners to straw borrowers, and the homeowners subsequently receive eviction notices.

In the second-most popular scam, the fraudsters falsely claim affiliations with lenders to convince distressed homeowners to pay large advance fees for modification services, but then do nothing to keep the borrowers in their homes.

Don't think for a moment that there isn't some prosecution going on in this arena. The FBI has already stepped up mortgage fraud investigations and has assigned task forces and groups to detect, indict, and prosecute this crime.

Clearly, mortgage fraud isn't going away anytime soon, so keep your eyes and ears open to any possible scams hitting your institution and customers.

It might not be the most damaging form of fraud hitting financial institutions these days. But it means everything to your customer.

Linda McGlasson is the managing editor for CUInfoSecurity, an information portal for financial industry professionals who want to learn the latest about banking regulations, industry news, events, and opinions. Reprinted from her blog with permission.