Las Vegas loses standing as mortgage-fraud capital

The CoreLogic Fraud Index shows that overall fraud risk for the mortgage industry has stabilized nationally and remained flat throughout 2010 and most of 2011, said Tim Grace, senior vice president of data and analytics at CoreLogic.

Nevada has been supplanted by California, Florida, New York, Illinois and North Carolina as the top-ranked states for mortgage fraud, according to the Santa Ana, Calif.-based company.

The flat trend is continuing into 2012 based on early indications from the index, Grace said.

“Like all criminal activity, mortgage fraud never completely goes away,” he said. “It can be difficult for buyers and sellers to see fraud because it’s often perpetrated behind the scenes.”

Advances in fraud detection technology and a strong focus on mortgage fraud by banks and law enforcement agencies curbed the fraud growth that spiked in 2007, Grace said.

CoreLogic estimated that fraud-related residential mortgage originations totaled $7.4 billion in 2011, a decrease of nearly 40 percent from $12 billion in 2010.

Nevada Attorney General Catherine Cortez Masto formed a Mortgage Fraud Strike Force in 2009 to take action against predatory “mortgage rescue” companies and individuals claiming to offer services to stop foreclosures. Since its inception, the task force has successfully investigated and prosecuted numerous cases.

Still, home sellers and buyers must protect themselves from mortgage scams, Grace said. Sellers should get more than one opinion on the value of their home from qualified sources before accepting an offer, especially an unsolicited offer, he said.

“Buyers should beware of get-rich schemes involving real estate investment,” he said. “We also encourage all consumers to check their credit reports for unauthorized accounts.”

The most prevalent types of mortgage fraud identified by CoreLogic are undisclosed debt obligations, inflated property values, misrepresentation of assets, false or stolen identity used to apply for a loan, and misrepresentation of income or employment.

Rick Piette, manager of Premier Mortgage Lending in Las Vegas, said mortgage fraud proliferated in Las Vegas during the “weird” years of 2004 to 2008, when just about anybody who could fog a mirror was getting a loan.

“I think the elimination of the low-doc loan is the main thing that helped fix the problem,” Piette said. “When the borrower had the ability to just walk in and state his income and assets, it just opened up the box. Now we verify absolutely everything.”

Piette said he’s starting to see more companies improperly fixing credit reports to qualify borrowers for loans. They’ll dispute a debt with credit rating agencies such as TransUnion and TRW, and get someone into a home loan during the 90-day appeal period when the problem doesn’t show on their credit report, he said.

Mortgage fraud is also starting to show up in short sales, or lender-approved sales for less than the principal balance, which accounts for about one-fourth of existing home sales in Las Vegas.

Fast, highly profitable reselling, commonly known as “flipping,” can occur when lenders are unaware of higher offers on a property or the buyer has initiated resale before completing the initial short sale.

A 2011 short-sale research study by CoreLogic estimated unnecessary losses related to risky short sales at $375 million annually. Alerts of potential property fraud grew 262 percent last year, likely due to an increase in short-sale fraud, Grace said.

For example, a borrower owes $120,000 on a home with a market value of $100,000. Rather than go to foreclosure, the bank agrees to sell the home at market rates. The listing agent gets an offer of $97,000, but tells the bank the only interest came from an investor willing to pay $85,000.

In the first transaction, the bank sells the property to a “straw buyer,” often an associate of the listing agent, for $85,000. The straw buyer then sells to the actual buyer for $97,000. The $12,000 difference is shared between the agent and straw buyer, with the bank suffering the loss.

Las Vegas is target-rich for short-sale fraud, Grace said. CoreLogic’s 2011 U.S. Housing and Mortgage Trends report shows Las Vegas leads the nation in loans that are 90 days delinquent (25.4 percent) and third in the nation for mortgages that exceed current property value (25.1 percent).

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.