DOJ Plans ‘Operation Malicious Mortgage’ Sweeps in June

MBA (3/14/2008 ) Murray, Michael
CHICAGO—The Department of Justice plans to run a national sweep in June—Operation Malicious Mortgage—bringing federal and state resources together to find perpetrators of mortgage fraud against lenders.
The June national sweeps would follow up on previous efforts by DOJ, which resulted in 150 defendants in 2004 and 155 defendants in 2005 who agreed to testify on mortgage fraud cases against lenders.

John Arterberry, executive deputy chief of the fraud section at DOJ, said it is still too early to determine the number of defendants for the third national sweep or its overall size, but he said it would likely double 2005’s sweep because mortgage fraud against lenders did not reach a critical point compared to now.

“I’m optimistic that it will be substantially larger than the other two sweeps,” Arterberry said.

As suspicious activity reports (SARs) tripled in the past five years and counter-terrorism activities grew, resources depleted, Arterberry said. But he added that joint efforts between industry and law enforcement are causing SARs to be less misunderstood. Processing SARs and using them is “one of the more impressive results I’ve seen in law enforcement in the last few decades,” he said. “If we didn’t have the SAR data, we could not do what we are doing.”

A report from the Federal Trade Commission in October 2007 said 30.2 million adults, or 13.5 percent of the United States adult population, were victims of fraud in 2006.

Recent trends of mortgage fraud against lenders have become a test of underwriting and best practices, Arterberry noted. New products in non-prime lending opened opportunities for homeownership but non-traditional loan products became more commonplace and led to greater opportunities for perpetrators of mortgage fraud against lenders.

“We have to stay with the tried and true with the underwriting we all grew up with,” Arterberry said. “There is no substitute for doing it the right way.”

David Kittle, CMB, chairman-elect of MBA and president of Principle Wholesale Lending Inc., Louisville, Ky., said an MBA fraud task force is working on a Mortgage Fraud Database to track properties and schemes and share information with the industry and law enforcement officials. He said the task force hopes to release its first request for proposals in the next 30 days.

"While we cannot attack fraud alone, we as an industry can and must work harder to get mortgage fraud against lenders and break it down, out of our industry," Kittle said.

Meanwhile, MBA is working with Congress to advocate additional funds through FHA reform to combat fraud. MBA's 2008 Advocacy Agenda includes requesting additional resources to fight fraud against lenders—$31.25 million over a five-year period dedicating funding to the FBI and Justice Department, Kittle said.

Last year, MBA signed a memorandum of agreement with the FBI to work together to promote the FBI’s Mortgage Fraud Warning Notice. The notice states that it is a federal crime for any person to make any false statement regarding income, assets, debt or matters of identification or to willfully overvalue any land or property in an effort to influence the action of a financial institution. MBA made it available to lenders to post on their web sites to educate consumers and mortgage professionals on the penalties of mortgage fraud against lenders—a punishment of up to 30 years in prison, a $1 million fine or both.

Arterberry said the FBI and U.S. attorneys have been asked to share information on local trends of mortgage fraud against lenders. “If we can do a better job of sharing information, [lenders] are going to protect themselves and businesses from any fraud schemes moving forward,” he said.

Merle Sharick, CMB, vice president at ChoicePoint and national manager of business development at Mortgage Asset Research Institute Inc., Reston, Va., said nearly 14 percent of U.S. adults were affected by mortgage fraud and that insurance companies lost $100,000 on average from fraud-related cases, while real estate-related fraud cases averaged $200,000 in costs.