Mortgage fraud had gone high tech.
Criminals no longer rely on the steady hand of forgers to fool banks into issuing mortgages, according to Dick Ward, president of Guarantee Asset Protection Services, Canoga Park, Calif.
Now they are using laser printers and computer programs available at neighborhood computer stores to produce forgeries that "look better that the real documents," he said.
|Very Prevalent'
And the average loss from such fraud runs to $35,000 according to Mr. Ward, whose company investigates mortgage fraud.
"It's very prevalent," said William Matthews, managing director at Mortgage Asset Research Institute Inc., an information-sharing company in Reston, Va.
At the Veterans Administration; about 20% of a random sample of defaulted loans "involve one sort of loan fraud or another," said Gerald Ferance, a loan specialist there.
Mr. Matthews pointed to the increased fragmentation of the mortgage industry. He said mortgage companies used to perform all facets of loans, but now appraisals and other services are contracted out.
"It's just more difficult to keep track of contractors than it is employees," he said.
Random Audits
And their scams are getting harder to detect. Income reports, pay stubs, and credit reports are forged, and tax software lets the user correct tax exhibits to conform with inflated incomes.
Every major federal agency involved in mortgages has a fraud investigation unit. Most do random audits of defaulted loans for fraud. If a mortgage is found to be suspect, regulators will either seek indemnification or refer the case to enforcement officials.
Critics say that audits are not enough and that more field investigations of defaulted loans are needed.
$10 Million Fraud
But Joan Ferenczy, manager of the fraud investigation unit at the Federal Home Loan Mortgage Corp., said that audits were effective as a first step at finding fraud. Freddie Mac once caught a person who had received $10 million in loans based on phony applications.
Freddie Mac says it receives daily calls on its fraud hotline.
Officials say mortgage fraud tends to travel like a virus to places where the economy is weakest. In the 1980's, fraud was hot it Texas, where the S&L crisis was most severe. Later, the pale economy of the Northeast attracted the most fraud.
Mortgage fraud is now so prevalent in California that the Federal Bureau of Investigation has made policing in that state a priority.
How the VA Fights
Mortgage Fraud
* Chooses a lender at random
* Identifies loans that went into early default recently
* Draws a random sample
* Conducts an audit
* Gets a second credit report
If fraud is detected, the VA:
* Cancels indemnification agreement or gets payment from lender
* May refer case to VA's inspector general
* May give case to Justice Department for prosecution
