Freddie Focuses on Mortgage Fraud

Freddie Mac is taking a closer look at mortgage-fraud cases, the latest national initiative against opportunists who have sprouted up from the rubble of the subprime crisis.
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NEW YORK (

TheStreet

) -

Freddie Mac

(FMCC.OB)

is taking a closer look at mortgage-fraud cases, the latest national initiative against

opportunists who have sprouted up from the rubble of the subprime crisis.

Ed Haldeman, CEO of the government-controlled mortgage giant, released a statement on Monday outlining popular mortgage scams, Freddie Mac's response and suggestions for combatting such shysters. In some cases, "foreclosure rescue" companies or other types of "specialists" promise a better solution for distressed borrowers, but never deliver it. In other cases, fraudsters are tricking banks into short-sale fraud by selling properties for lower values than they are worth, then flipping the homes to make a profit.

"Victims lose their savings - and often their homes," said Haldeman. "Lenders, investors, communities, and taxpayers lose billions of dollars a year. ... In other words, mortgage fraud harms everyone."

As short sale frauds have started to climb, Freddie Mac this month began requiring an affidavit signed by all parties, certifying the "arm's-length nature" of the transaction. That way, a real-estate agent can't profit by buying the property for a low price and reselling it at a much higher value. Freddie Mac has also incorporated a new chapter on fraud in its guide for mortgage servicers like

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

Citigroup

(WFC) - Get Report

, which are also being taken advantage of - to the tune of billions of dollars per year - by small-time mortgage crooks.

Scams often target the most troubled housing markets of the country, particularly communities in the Southwest or Sun Belt - Las Vegas, Miami, Southern California. According to data from the F.B.I., which announced a huge mortgage-fraud sweep in June, banks reported 13% more cases during the first six months of 2010 vs. the year-ago period. Law enforcement officials estimate losses at between $4 billion and $6 billion annually.

TheStreet

took a

deep look at such schemes as part of its

"Mortgage Mayhem" series last month,

profiling an individual homeowner and examining

the government's reaction . The examination found the government response to the increasing number of fraud cases has been

haphazard and disorganized.

The Department of Housing and Urban Development is the main agency to whom consumers ought to report fraud cases. However, there are mortgage-fraud investigations happening at no less than six federal agencies, along with attorneys general in most of the 50 states and local law enforcement officials as well. Surprisingly, the Postal Service remains one of the main prosecutors of mortgage-fraud scams.

Freddie and its sister firm,

Fannie Mae

(FNMA.OB)

, also have mortgage-fraud detection operations in place, as do most major lenders. Haldeman, whose firm is effectively owned and operated by the federal government, went as far as to say that the rising number of mortgage scams may be delaying the nation's economic recovery. Homeowners are victimized and plagued with additional uncertainty about their homes and finances, while lenders and taxpayers accrue additional losses on the scams.

Haldeman cited a case in Pennsylvania in which a real-estate agent attempted to buy a property under a short sale for $160,000 while simultaneously marketing the home to an interested buyer for $225,000. Both transactions were set to close on the same day. Freddie Mac's fraud investigators were tipped off to the plan and stopped it. Had it went through, the old homeowner, the new homeowner, the lender and taxpayers all would have been duped to the tune of $65,000.

Haldeman advises borrowers to refuse offers from specialists who demand upfront fees, guarantee any type of result, request mortgage payments be sent to a new, non-servicer entity, or ask for the title to a home. He also suggests that borrowers don't sign documents they don't understand, or those that have errors, blank spaces or seem generally askew.

"If it sounds too good to be true," said Haldeman, "it probably is."

-- Written by Lauren Tara LaCapra in New York

.

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