No place has been hit harder by the rash of mortgage fraud sweeping the nation than Georgia.
The FBI has said Georgia is one of the top 10 “hot spots” for mortgage fraud, which jumped from 477 cases and a loss of $15.4 million in 2003 to 1,409 cases and a potential loss of $44.2 million last year.
The Mortgage Asset Research Institute, a Virginia-based mortgage industry research and marketing firm, said Georgia is number one when it comes to fraud.
And Georgia Attorney General Thurbert Baker has said mortgage fraud has reached epidemic proportions in this state.
“Mortgage fraud is an epidemic in Georgia that not only affects lending institutions through fraudulent loans, but affects every Georgian through higher interest rates and inflated property values,” Baker said in a June statement announcing yet another bust of a mortgage fraud ring.
So what makes the Peach State so ripe for the picking when it comes to mortgage fraud schemes?
Outside of law enforcement no person has likely paid more attention to Georgia’s rising tide of fraud than Ann Fulmer, one of the founders and leaders of the Georgia Real Estate Fraud Prevention and Awareness Coalition, or GREFPAC.
Fulmer and her organization have been working with state and federal authorities to root out and raise awareness about fraud for nearly a decade. The work started when residents began noticing a growing fraud problem in the fast-growing suburban counties around Atlanta.
Fulmer said the rapid residential growth of metro Atlanta combined with rising housing prices has clearly helped fuel the penchant for fraud in the region.
“One of the things we have observed in Georgia that makes fraud work is when you have a lot of people who come in from other places,” Fulmer said in an interview with MortgageDaily.com. “Whether they are acting as buyers, investors or whatever, they really don’t know the markets — so they don’t know who to deal with and they don’t know if they are being charged an outrageous price for a piece of property.”
The FBI, which over the last few years has stepped up its enforcement and investigations of mortgage fraud, said the problem is a natural outgrowth of the mortgage brokerage boom in the region.
Many consumers now use mortgage brokers to secure home loans. While the vast majority of brokers are legitimate and scrupulous business people, a lack of control and oversight of the industry breeds fraudsters who find havens in illegal mortgage brokerage operations.
“The increased reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved,” the FBI said in a May report that focused heavily on the problem in Georgia.
The competitiveness of the industry also leads some brokers to turn away from ethical and legal behavior in an order to close loans in a quick and timely manner, authorities say.
Fulmer said fraud is hardly contained to the fast-growing suburbs ringing Atlanta.
Investors looking for deals in once depressed urban areas — which are known as “gentrification” — have been ripe for fraud schemes, particularly a crime known as “property flipping.”
Flipping, or the fast buying and selling of property, is legal. But it turns into fraud when illegal methods are used to overstate the value of a property in order to scam a mortgage lender into approving more money that the property is truly worth.
“Law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders, to conceal their methods and override lender controls,” Chris Swecker, an assistant FBI director, said in a report to Congress.
Flipping has been a persistent problem in Georgia, according to authorities and the Mortgage Banker Association of America, which has increased its efforts to expose fraud and offer solutions to prevent it.
But Fulmer is also encouraged because members of law enforcement and the mortgage industry are becoming more aware of fraud.
“A lot of Realtors … and mortgage brokers are just more aware than they used to be about fraud,” she said. “They recognize when an offer comes in that has the hallmarks of fraud.”
That’s what happened in June, when Georgia authorities busted a fraud ring using a tough new fraud act the state’s legislature enacted in May.
Attorney General Baker said the fraud was exposed “when a real estate closing attorney noticed that loan documents submitted to a lender in conjunction with a mortgage application did not ‘look right.'”
An investigation was launched that resulted in the arrest of four people on mortgage fraud charges.
Fulmer said the problems in Georgia are happening in other places as well.
“If people look in other fast-growing communities around the country they’ll find similar (fraud) rates,” she said. “What’s making a difference in Georgia is a network dedicated to identifying and reporting mortgage fraud.”
