FFIEC Issues Updated Guide to Mortgage Fraud

New White Paper Offers Lists of Red Flags, Best Practices The Federal Financial Institutions Examination Council (FFIEC) has issued an updated mortgage fraud prevention guide to help examiners understand, identify and detect these schemes.

This revised guide, "The Detection and Deterrence of Mortgage Fraud Against Financial Institutions: 2009 Mortgage Fraud White Paper," last issued in 2005, casts new light in the growing challenge of mortgage fraud. The crime's totals have been estimated by the Federal Bureau of Investigation at anywhere from $4 billion to $6 billion per year, and it continues to spread. The FBI has established Mortgage Fraud Task Forces and Working Groups across the country, and is investigating and prosecuting the crime to the tune of 574 indictments and 354 convictions in 2008.

The FBI's latest report on mortgage fraud shows Suspicious Activity Reports are climbing. Last April, the Justice Department and other federal agencies pledged to fight mortgage fraud aggressively, and this newly update paper offers help for financial institutions and examiners to detect and stop such scams.

The guide defines various types of fraud and gives examples of how scams are committed, providing a list of red flags and best practices. There are no new exam policies, procedures or requirements for institutions.

The schemes outlined range from builder bailout, buy and bail, "chunking," double selling, equity skimming, fictitious loans, loan modification and refinance fraud, phantom sales, property flip fraud, reverse mortgage fraud and short sale fraud.

The paper also talks about two associated fraud schemes: debt elimination and foreclosure rescue schemes that, while not perpetrated directly on financial institutions, can still result in a negative impact.

The paper includes a summary description of each type of mortgage fraud scheme, linked to a more complete discussion. The paper also details some of the common mechanisms of mortgage fraud schemes, which is helpful because they often include one or more mechanisms and may involve collusion between two or more people working together to perpetrate a fraud.





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