The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said.
Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department. In 2002, banks filed 5,623 reports.
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Mitch Heffernan is involved in starting a new mortgage business, but his old company - the now-defunct Mortgage Lenders Network - could land him in plenty of trouble with the state for not paying wages earned by his former employees.
The state Department of Labor confirmed Monday that it has applied for an arrest warrant in Superior Court in Middletown that would charge Heffernan - the former president of Middletown-based Mortgage Lenders - with 61 counts of failing to pay wages.
The wages that the department alleges were unpaid total $3 million, mostly in sales commissions. The commissions range from $5,000 to $300,000.
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Last month, a survey of the national appraisal industry conducted by October Research Corp. reported that 90 percent of appraisers feel pressure to inflate the value of homes to meet expectations — be it a purchase price or an estimated value for a refinance.
Of course, this isn’t the first time evidence of appraiser pressure has been aired. Just four years ago, during the boom, a similar study found that a full 55 percent of appraisers had had lenders, brokers or owners attempt to inflate their values. In 2005, Jonathan Miller, appraiser and bubble blogger, launched Soapbox to "vent" about the "pressure myself, my firm and my profession was under to make the number ‘or else.’"
"It seemed that no one really cared about ethics or the risk placed on [the] banking system," he wrote recently. "Appraisers were fast becoming the enablers to fraud and a whole lot of ‘gray areas’ that I wanted no part of."
In a boom market, meeting the expected price was not as hard to do. Everyone was making lots of money and less anxious about each individual deal going through. But now that sales volumes are down, re-fi fever has cooled and some markets have softened, mortgage brokers and even lenders try to set their target value in advance of hiring their appraiser. This leaves the appraiser caught between a house and a hard place.
"Internet-based mortgage companies call all the time," says Curt Thor of Real Estate Appraisals Association of Northern California and a Marin appraiser with North Bay Real Estate Appraisals for over 20 years. "They’re fishing for appraisers. They tell me what the number is and ask me if I can match it."
Thor says he typically won’t even look at such offers because if he can’t match the number once he visits that house, he knows he’ll find himself battling with mortgage brokers over being paid for his time. Once when this happened, he filed a complaint about the broker with the Department of Real Estate and copied the broker’s boss. "I got a check very quickly," he told me.
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The Massachusetts state Division of Banks is cracking down this month on what it sees as abusive business practices by mortgage lenders and brokers.
The agency issued a series of new emergency regulations earlier this month, requiring better documentation from lenders and prohibiting them from pressuring consumers into taking out mortgages they can’t afford or working without their own independent lawyers.
It also forced four companies — two of them located Worcester — to close immediately and place all pending mortgages with another, more established lender.
Commissioner of Banks Steven L. Antonakes said in a recent interview that division examiners found a pattern of deceptive business practices by some lenders during their most recent round of company inspections.
"We want to spell out in very plain English to send a message to lenders and brokers that these specific acts, whether they’re very obviously unfair or deceptive, or more subtle, they weren’t going to be tolerated," he said. "And you would put your license at risk by engaging in this kind of activity."
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