Subprime Problems, Prime Opportunities: Researching Mortgage Fraud

February 2008

IN THIS ISSUE

— Investigations, big and small, into mortgage fraud crisis
— Investigating the Business of Mortgages
— In the next issue

GREETINGS!

Welcome to the February 2008 edition of our newsletter. In this issue, we’ll examine how you can research potential mortgage fraud and abuse.

INVESTIGATIONS, BIG AND SMALL, INTO MORTGAGE FRAUD CRISIS

In a possible denouement to a crisis that has made major headlines for much of the last year, also affecting the American economy and millions of victims, the Federal Bureau of Investigation has announced that it has launched a criminal investigation targeting 14 companies which securitized mortgage bundles. Additionally, New York officials sued 26 underwriters that worked with Countrywide Financial, alleging that they assisted in the once-powerful company’s massive mortgage fraud.

While the feds examine the banks which bought and sold these pools of often-speculative mortgages, often reselling to investors as far away as Korea or Singapore, there are a few steps you can take to assist clients or others in scrutinizing the brokers and banks who may have made questionable loans to them.

INVESTIGATING THE BUSINESS OF MORTGAGES

Many persons who were persuaded to take on loans that would convert to unacceptable terms may not have done their homework on who they were dealing with at the bank of brokerage where they bought their mortgage. Many states – but not all – require mortgage brokers and mortgage bankers to be licensed, often either with a state regulation department or banking / finance department. The National Association of Mortgage Brokers also has a directory of its members, as well as a listing of its certified members, although this is a trade group and not a regulatory body.

Most state regulators of mortgage professionals, in our experience, have been eager to share the results of any disciplinary action taken against regulated members. Of course, many of the worst offenders may operate without licenses in the first place, in which case a review of county and federal litigation where the company purports to be based may be useful, as would a check with the Better Business Bureau.

IN THE NEXT ISSUE

In the March issue, we’ll look at how employee hotlines can deter accounting fraud, and examine the best ways to create this form of internal oversight.