Felons As Mortgage Brokers

When the housing market began to teeter on the edge of a meltdown, state and federal agencies were unprepared to prevent an avalanche of scams. In Florida, which some have called the mortgage fraud capital of the country, a recent Miami Herald investigation found that 10,000 convicted felons had been granted mortgage broker licenses from 2001-2007. More than 4,000 were approved even though they had committed crimes that the Office of Financial Regulation was specifically instructed to screen out, including white collar fraud, the newspaper reported.

Earlier this year, federal officials announced Operation Malicious Mortgage -- 400 indictments against individuals and companies allegedly involved mortgage fraud that led to nearly $1 billion in theft. But authorities say they were only able to target the worst fraud artists.

"We can’t investigate all the cases,” said Portland-based FBI agent Joe Boyer. “We have to prioritize.”

Many homeowners who are victimized by a scam don’t even report the crime to police, and those that do might find that officers won’t take a report, said Portland police Detective Liz Cruthers.

"If they do call police, I can guarantee you police will treat it as a civil problem," said Cruthers, who runs seminars for Oregon police so they will recognize the signs of mortgage fraud. “But our position is it's easier to prevent these cases then to investigate them.” Mortgage fraud is a general term. It covers the relatively small fibs of homebuyers who stretch the truth on income statements to squeeze into a new home. And it covers massive crimes involving con men who buy hundreds of homes using falsified documents. But many experts say there is an important distinction between “fraud for housing” and “fraud for profit.”

Foreclosure rescue fraud falls in the latter category. While no hard data is available on the prevalence of each type, Arthur Prieston – whose firm, The Prieston Group, sells mortgage fraud insurance -- said he believes that at least half all mortgage fraud involves outright con men. And with the market for easy credit and house flipping all but dried up, mortgage con artists have increasingly trained their eyes on desperate homeowners through foreclosure rescue fraud, he said.

Two years ago, foreclosure rescue fraud aimed at skimming equity was child’s play. There were many homeowners around the country who could not pay their mortgage but had plenty of equity in their homes. A simple “suckers list” of at-risk owners with high equity could be created simply by cross-referencing public “Notice of Default” lists and local property tax rolls.

That's how former stripper Joy Jenise Jackson and her Washington, D.C. area, firm Metropolitan Money Store managed to target only homeowners in foreclosure with more than $100,000 in equity, prosecutors say. Before her operation was shut down, Jackson had skimmed $35 million in equity from hundreds of homes, according to an indictment unsealed in February 2008.

In another variation of the scam, con artists talk victims into transferring title of their home, then recruit investors know as “straw buyers” to take legal ownership of the property. The straw buyers pay off the old mortgage, take out loans against the full equity of the homes and pocket the difference. The straw buyers’ role is simply to provide a viable credit score and credit profile so a bank will approve the loan.