Valley fighting mortgage fraud wave

A wave of mortgage fraud is rippling through pockets of the Valley, inflating home values through scams called cash-back deals.

Left unchecked, cash-back deals cost homeowners and lenders millions of dollars and could erode confidence and values in Arizona’s real estate market.

The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Neighbors may then discover home values in the area are exaggerated. Homeowners stuck with overpriced mortgages may never recover the difference. And lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy.
While the extent of the fraud is unclear, an Arizona Republic investigation into these cash-back deals found organized groups of speculators have bought multiple homes this way, leaving whole neighborhoods with inflated values. Add to these the individual deals done by amateurs who hear others talk about the easy money they made from cash-back sales.

State investigators and real estate industry leaders want more enforcement and greater public awareness to stop the spread of cash-back deals before the damage mounts.

“Mortgage fraud in the Valley has become so prevalent people think it’s a normal business practice,” said Amy Swaney, a mortgage banker with Premier Financial Services and past president of the Arizona Mortgage Lenders Association.

Under federal law it is illegal to misrepresent the value of a home to a lender. Everyone who is a party to the deal is subject to prosecution.

Felecia Rotellini is a Notre Dame law school graduate and former assistant attorney general who is now superintendent of the Arizona Department of Financial Institutions. Her agency regulates mortgage lenders, state banks and credit unions in the state. Alarmed by what she was hearing from lenders and real estate agents, she has just pulled together state and federal regulators to form an Arizona mortgage fraud task force.

“People need to understand these cash-back deals are illegal and stop,” she said. “We are going after mortgage fraud.”

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One Response to “Valley fighting mortgage fraud wave”

  1. Stuart Says:
    January 23rd, 2007 at 8:23 pm

    It’s alarming how much mortgage fraud seems to be rearing its ugly head in the past few years (due primarily to the boom in real estate home values).

    Playing devil’s advocate: Many of these mortgage companies are getting so restrictive on all the tedious paperwork required, and popping so many additional items on you at the last second prior to funding…. many buyers have struck back by doing whatever it took to bypass the issues. This, in turn, has led to public knowledge that such measures WORK. Therein lies the problem… crooks, armed with information the mortgage industry has provided, have turned on the mortgage industry. This is going to be quite interesting to watch in the coming years.

    I’m in a real estate discussion forum which has many juicy topics for everyone. please come join us if you can at: http://www.homefindinginfo.com/realestateforum/default.asp

    Cheers,

    Stuart

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