Sharks in the Housing Pool

From Business Week

Welcome to the dark side of the housing boom. While the plunge in interest rates has triggered an explosion of housing and mortgage activity, allowing millions of Americans to buy and refinance houses, it has also given rise to an unprecedented wave of fraud.

The FBI says the number of suspected fraud incidents reported by federally chartered banks, which underwrite roughly half of all mortgages, has soared nearly fivefold since 2000, to 17,700 last year, and is set to top 20,000 cases this year. No one has exact figures on how much the fraud is costing banks and homeowners, but analysts say the losses could well amount to more than $2 billion a year.

And here's the rub: With the property market at last showing signs of cooling off in some parts of the country, the banks may suddenly find themselves less insulated from mortgage scams. Says William Matthews of the Mortgage Asset Research Institute: "In a flat or declining market, the bodies are going to rise to the surface more quickly."

Why the rise in fraud? Chalk it up in large part to the sheer number of mortgages banks are handling nowadays. The plunge in rates has goosed mortgage volume from roughly $800 billion a year in the mid-1990s to more than $2.6 trillion now. To meet demand, lenders hired tens of thousands of inexperienced staffers at the same time they were working feverishly to cut the time needed to close loans. As a result, experts say lenders sometimes cut corners on the due diligence that could have caught some of these frauds.

Read the entire Business Week story at this link.

— The Boy in the Big Housing Bubble