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Thursday, June 17, 2010

Houses of Cards: Huge Mortgage Fraud Bust

In a development which surely is just the tip of the iceberg, the Justice Department has announced the arrests of 485 people in mortgage fraud cases involving a total of 1,215 criminal defendants.

Fraud comes in many forms and mortgage fraud has many varieties. Fudging some income information or lying about a vacation home being a primary residence are just two of the simplest types of fraud. Outright fabrications of individuals, employers and credit data is identity fraud and can hurt unsuspecting people. It is NOT a victimless crime.

Here's why. This type of fraud hurts banks, which in turn pass the costs on to depositors and borrowers. Banks are for-profit and fraud hurts their bottom line. The next time you complain about a zero passbook savings rate, think about the prevalence of mortgage fraud.

One characteristic of mortgage fraud is the overstating of the value of the property.   Rarely is a property undervalued as part of a fraud, unless an undervaluing pursuant to a buyer-friendly appraisal is needed to convince a bank to go along with a deceptive short sale.

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