Borrowers obtained loans for multiple properties
within a short period of time. Frequently the subject properties were
located in states outside the borrower’s home state. The fraudulent activities
generally included appraisal fraud, occupancy fraud, fraudulent property
flipping, forged or fraudulent documents, and misrepresentation of assets and
debts. These schemes also included borrowers participating in fraudulent real
estate investment schemes by agreeing to have their personal credit used to
acquire mortgages in return for a fee plus the promise of additional commissions
when the property was resold. Investors were told the properties would
be renovated and sold in approximately one year, and that mortgage payments
would be made with rental income. The fraudulent activities generally included
appraisal fraud, asset rental fraud, occupancy fraud, straw buyer, and misrepresentation
of assets and debts. Ultimately the borrowers were left owing
mortgages that exceeded the property value.
Tuesday, November 30, 2010
Elaborate Mortgage Fraud Schemes
Although the numbers of SAR narratives describing elaborate mortgage fraud
schemes did not constitute a particularly significant percentage of the entire sample,
some of these narratives described apparent fraud for profit schemes that were notably
elaborate and organized. These schemes are described below.
Mortgage rescue schemes. Seven of the sampled narratives described fraudulent
mortgage rescue schemes. Fraud perpetrators preyed on individuals
threatened with foreclosure of their homes. Typically, the home owner was
told that if they signed a quit claim deed for the benefit of the rescuer, the mortgage
would be paid and the homeowner could continue living in the house
with the promise that the property would be deeded back when the homeowner
was able to obtain refinancing. The rescuer recorded the quit claim deed and
then sold the property. Whereas in these instances, the borrower was the victim
of the fraud, another type of mortgage rescue scheme defrauded the lender.
In these cases, borrowers participated as straw buyers to purchase property
and then quit claim the property back to the seller. This was considered a type
of mortgage rescue scheme since typically the sellers were in default when the
transfers occurred.
“Freeman in nature” schemes. Four reports described attempted fraudulent
payoffs with “Freeman in nature” arguments.16 These arguments claimed
that no money exchanged hands (i.e., the loan was merely a paper transaction),
therefore there was no duty to repay the mortgage. Suspected Freeman
schemes made up less than 1% of the sampled narratives, but they represent a
danger to both lenders and homeowners. The reviewed Freeman schemes frequently
resulted in the filing of fraudulent lien releases in county land records
endangering the lender’s loan security. Ultimately, homeowners who participate
in these schemes lose their homes.
“Freeman in nature” arguments refer to specious arguments that avow that the funds were never
loaned and therefore the borrower has no duty to repay the mortgage. These arguments rely on an
unreasonable interpretation of Section 1-207 of the Uniform Commercial Code that has never been
affirmed or supported by any court or governmental authority.
schemes did not constitute a particularly significant percentage of the entire sample,
some of these narratives described apparent fraud for profit schemes that were notably
elaborate and organized. These schemes are described below.
Mortgage rescue schemes. Seven of the sampled narratives described fraudulent
mortgage rescue schemes. Fraud perpetrators preyed on individuals
threatened with foreclosure of their homes. Typically, the home owner was
told that if they signed a quit claim deed for the benefit of the rescuer, the mortgage
would be paid and the homeowner could continue living in the house
with the promise that the property would be deeded back when the homeowner
was able to obtain refinancing. The rescuer recorded the quit claim deed and
then sold the property. Whereas in these instances, the borrower was the victim
of the fraud, another type of mortgage rescue scheme defrauded the lender.
In these cases, borrowers participated as straw buyers to purchase property
and then quit claim the property back to the seller. This was considered a type
of mortgage rescue scheme since typically the sellers were in default when the
transfers occurred.
“Freeman in nature” schemes. Four reports described attempted fraudulent
payoffs with “Freeman in nature” arguments.16 These arguments claimed
that no money exchanged hands (i.e., the loan was merely a paper transaction),
therefore there was no duty to repay the mortgage. Suspected Freeman
schemes made up less than 1% of the sampled narratives, but they represent a
danger to both lenders and homeowners. The reviewed Freeman schemes frequently
resulted in the filing of fraudulent lien releases in county land records
endangering the lender’s loan security. Ultimately, homeowners who participate
in these schemes lose their homes.
“Freeman in nature” arguments refer to specious arguments that avow that the funds were never
loaned and therefore the borrower has no duty to repay the mortgage. These arguments rely on an
unreasonable interpretation of Section 1-207 of the Uniform Commercial Code that has never been
affirmed or supported by any court or governmental authority.
Filings on Mortgage Brokers
A growing number of SARs report that mortgage brokers initiated the fraudulent
loan applications. Filers are increasingly listing mortgage brokers as subjects in
these SARs.
Figure 1 depicts a three year growth trend for total mortgage fraud comparing SAR
filings and those reporting mortgage brokers as subjects. SARs reporting mortgage
brokers as subjects comprise over one quarter of the total mortgage loan fraud SARs
filed for the period between April 1, 2006 and March 31, 2007.
Figure 1
Reports of fraudulent appraisals continue to increase in SARs reporting mortgage
loan fraud. Filers of nearly 13% of the narratives sampled for this report suspected
appraisers as participants in the reported fraud. This represents an increase of two
percentage points from the 11% reported in the 2006 FinCEN Mortgage Loan Fraud
As the Occupation of the Subject report. All fraudulent flipping6 and nearly all other organized fraud schemes that
were reviewed relied on fraudulent appraisals. A small number of sampled narratives
reported the fraud was conducted through the theft of licensed appraisers’
identity and license information. The increase in reporting of appraisal fraud and
theft of licensed appraiser information underscores the value of independent verifi-
cation of appraisal documentation.
Vulnerabilities in Specified Mortgage Products
Although many SAR narratives did not identify the mortgage product involved in
suspected mortgage loan fraud activities, some associated trends and vulnerabilities
were deduced from those narratives that did specify the mortgage product. A small
number of narratives specified that loans were subprime.7
Trend for Suspected Fraud in Cash-Out Refinance Loans
Filers identified “cash-out refinance loans”8 in 3.35% of the SARs reporting suspected
mortgage loan fraud filed between April 1, 2006 and March 31, 2007. Over
the past six years, the study revealed a significant growth in the number of depository
institution SARs reporting suspected fraud in these loan products. There was a
nearly 53% increase in suspected fraud in these loans between 2005 and 2006.
Property Flips: Property is purchased, falsely appraised at a higher value, and then quickly sold.
What makes property flipping illegal is that the appraisal information is fraudulent. The schemes
typically involve fraudulent appraisals, doctored loan documents, and inflation of the buyer’s income.
For the period April 1, 2006 through March 31, 2007, 79 SAR narratives (0.19% of total filings)
specified suspected fraudulent loans were subprime. Other SAR narratives do not provide
sufficient details to make this determination.
A cash-out refinance loan is a refinanced loan granted for an amount greater than what the borrower
owes on the prior loan. The additional amount of the refinance is funded by existing equity.
loan applications. Filers are increasingly listing mortgage brokers as subjects in
these SARs.
Figure 1 depicts a three year growth trend for total mortgage fraud comparing SAR
filings and those reporting mortgage brokers as subjects. SARs reporting mortgage
brokers as subjects comprise over one quarter of the total mortgage loan fraud SARs
filed for the period between April 1, 2006 and March 31, 2007.
Figure 1
Reports of fraudulent appraisals continue to increase in SARs reporting mortgage
loan fraud. Filers of nearly 13% of the narratives sampled for this report suspected
appraisers as participants in the reported fraud. This represents an increase of two
percentage points from the 11% reported in the 2006 FinCEN Mortgage Loan Fraud
As the Occupation of the Subject report. All fraudulent flipping6 and nearly all other organized fraud schemes that
were reviewed relied on fraudulent appraisals. A small number of sampled narratives
reported the fraud was conducted through the theft of licensed appraisers’
identity and license information. The increase in reporting of appraisal fraud and
theft of licensed appraiser information underscores the value of independent verifi-
cation of appraisal documentation.
Vulnerabilities in Specified Mortgage Products
Although many SAR narratives did not identify the mortgage product involved in
suspected mortgage loan fraud activities, some associated trends and vulnerabilities
were deduced from those narratives that did specify the mortgage product. A small
number of narratives specified that loans were subprime.7
Trend for Suspected Fraud in Cash-Out Refinance Loans
Filers identified “cash-out refinance loans”8 in 3.35% of the SARs reporting suspected
mortgage loan fraud filed between April 1, 2006 and March 31, 2007. Over
the past six years, the study revealed a significant growth in the number of depository
institution SARs reporting suspected fraud in these loan products. There was a
nearly 53% increase in suspected fraud in these loans between 2005 and 2006.
Property Flips: Property is purchased, falsely appraised at a higher value, and then quickly sold.
What makes property flipping illegal is that the appraisal information is fraudulent. The schemes
typically involve fraudulent appraisals, doctored loan documents, and inflation of the buyer’s income.
For the period April 1, 2006 through March 31, 2007, 79 SAR narratives (0.19% of total filings)
specified suspected fraudulent loans were subprime. Other SAR narratives do not provide
sufficient details to make this determination.
A cash-out refinance loan is a refinanced loan granted for an amount greater than what the borrower
owes on the prior loan. The additional amount of the refinance is funded by existing equity.
Creating and Displaying Evaluations
Evaluations are generated according to the settings you have made in Customizing. Evaluations
that need to be generated on a regular basis can be scheduled for specific dates. If you find that
an evaluation does not provide the required results, you can modify the volume of data the
information system supplies for the evaluations.
Integration
This function is used for creating evaluations for customers (FI-AR) and vendors (FI-AP).
Prerequisites
You have made the necessary settings in Customizing (IMG).
Features
In the following topics, you will learn how to
Select evaluations
Create evaluations
Display evaluations
Change the volume of data for the evaluations
that need to be generated on a regular basis can be scheduled for specific dates. If you find that
an evaluation does not provide the required results, you can modify the volume of data the
information system supplies for the evaluations.
Integration
This function is used for creating evaluations for customers (FI-AR) and vendors (FI-AP).
Prerequisites
You have made the necessary settings in Customizing (IMG).
Features
In the following topics, you will learn how to
Select evaluations
Create evaluations
Display evaluations
Change the volume of data for the evaluations
Defining Evaluation Levels
You can use different levels for each evaluation. Possible levels are:
Group level
Credit control area level
Company code level
Business area level
The combination of grouping criteria and evaluation level enables you to carry out a large number
of different evaluations.
Prerequisites
In Customizing (IMG), you specify the levels at which evaluations should be made (see Creating
and Changing a Selection Variant for the Data Retrieval Program [Page 31] [Page 31]).
Features
Using the configuration delivered in the standard system, you can generate specific drilldown
lists. You can, for example, use the following drilldown lists for currency analysis:
Drilldown by company code
at group level
at credit control area level
at business area level
Drilldown by business area
at group level
at credit control area level
at company code level
Drilldown by country
at group level
at credit control area level
at company code level
at business area level
Drilldown by risk category
at group level
at credit control area level
at company code level
at business area level
Defining Evaluation Levels
Drilldown by accounting clerk group
at group level
at credit control area level
at company code level
at business area level
Drilldown by credit control area
at group level
at business area level
Group level
Credit control area level
Company code level
Business area level
The combination of grouping criteria and evaluation level enables you to carry out a large number
of different evaluations.
Prerequisites
In Customizing (IMG), you specify the levels at which evaluations should be made (see Creating
and Changing a Selection Variant for the Data Retrieval Program [Page 31] [Page 31]).
Features
Using the configuration delivered in the standard system, you can generate specific drilldown
lists. You can, for example, use the following drilldown lists for currency analysis:
Drilldown by company code
at group level
at credit control area level
at business area level
Drilldown by business area
at group level
at credit control area level
at company code level
Drilldown by country
at group level
at credit control area level
at company code level
at business area level
Drilldown by risk category
at group level
at credit control area level
at company code level
at business area level
Defining Evaluation Levels
Drilldown by accounting clerk group
at group level
at credit control area level
at company code level
at business area level
Drilldown by credit control area
at group level
at business area level
Financial Information System
Purpose
The financial information system enables you to run evaluations for the general ledger, accounts
receivable, and accounts payable.
Implementation Considerations
For more information about the Customizing settings, see the Implementation Guide (IMG) under
Financial Accounting Accounts Receivable and Accounts Payable Information System.
Features
The Financial Accounting application component is the primary database of the financial
information system. This application is a central data pool that collects all accounting data from
within an organization. The function of the financial information system is to evaluate this
extensive database online and display the information on the screen in an easy-to-read form.
Within the accounts receivable and payable information systems, you can analyze individual
operational areas as often as you require. You can evaluate, among other things, payment
history, cash discount history, currency exposure among customers and vendors, or aging
reports.
Additional Information
For a description of other evaluations available in the SAP Financial Accounting system, see the
Information system [Ext.] in G/L accounting.
The financial information system enables you to run evaluations for the general ledger, accounts
receivable, and accounts payable.
Implementation Considerations
For more information about the Customizing settings, see the Implementation Guide (IMG) under
Financial Accounting Accounts Receivable and Accounts Payable Information System.
Features
The Financial Accounting application component is the primary database of the financial
information system. This application is a central data pool that collects all accounting data from
within an organization. The function of the financial information system is to evaluate this
extensive database online and display the information on the screen in an easy-to-read form.
Within the accounts receivable and payable information systems, you can analyze individual
operational areas as often as you require. You can evaluate, among other things, payment
history, cash discount history, currency exposure among customers and vendors, or aging
reports.
Additional Information
For a description of other evaluations available in the SAP Financial Accounting system, see the
Information system [Ext.] in G/L accounting.
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