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FBI: South Carolina ranks second in mortgage fraud
By Dennis Quick
Senior Staff Writer
In November, four Charleston-area defendants pleaded guilty before a U.S. District Court to swindling $875,000 from WMC Mortgage Corp. and Fieldstone Mortgage Co. A fifth defendant in the scheme pled guilty in October.
The defendants—a lawyer, a mortgage company vice president, a mortgage-loan originator, a real estate broker and a man who lured homebuyers into the scam—falsified documents in mortgage schemes involving four homes in Charleston’s upper peninsula.
That same month in the Myrtle Beach area, a mobile home dealer allegedly beefed up a homebuying couple’s bank accounts by a total of $36,500, making it appear to mortgage companies that the buyers had enough money for down payments and other loan fees. The mobile home dealer reclaimed the money days later through checks from the prospective homebuyers amounting to the total sum of the original bank deposits. The dealer denied the allegations.
Both cases concern mortgage fraud—a crime for which South Carolina ranks second in the nation, according to the Virginia-based Mortgage Asset Research Institute, or MARI.
The MARI Fraud Index gives South Carolina a score of 250, indicating a high incidence of mortgage fraud stemming from loans originating in the state between 2001 and 2004. Only Georgia scores higher, with a mark of 297. Florida (194), Utah (160), North Carolina (159), Missouri (140), Nevada (129), Texas (127), Illinois (126) and Michigan (121) round out the top 10 index.
An index score of 100 is considered average.
Of the many different kinds of fraud constituting white-collar crime in South Carolina, mortgage fraud is the No. 1 problem, said Special Agent Aaron Hawkins of the FBI’s Columbia office.
The crime is not concentrated in any particular region but occurs all over the state, Hawkins added.
Hawkins attributed the rise in mortgage fraud in South Carolina and across the nation to the housing boom, fueled by low interest rates and high home costs.
The FBI defines mortgage fraud “as a material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
There are two types of mortgage fraud: fraud for property (also known as fraud for housing) and fraud for profit.
Fraud for property usually involves the loan borrower making misrepresentations regarding income, personal debt and property value, and there are usually down payment problems. The borrower wants the property and intends to repay the loan. Sometimes industry professionals coach the borrower so the borrower can qualify for a loan. Fraud for property accounts for 20% of all fraud, according to the FBI.
Fraud for profit involves mortgage lenders, appraisers, real estate brokers and other industry professionals and entails multiple loan transactions with several financial institutions.
The frauds include overstated income, assets, collateral and length of employment. Neither the borrower’s debts nor credit history are fully disclosed, and the credit history is often altered. Usually the borrower assumes the identity of another person and says he or she intends to live on the property when in fact the borrower intend to use the property for rental income or purchase it for someone else. The property value is inflated to increase the sales value, making up for the lack of a down payment and generating cash for profit.
South Carolina ranks in the Top 10 for both types of fraud, according to the FBI.
The FBI reports that in fiscal year 2005, mortgage fraud accounted for the loss of more than $1 billion nationally.
Dennis Quick is senior staff writer for the Business Journal. E-mail him at dquick@charlestonbusiness.com.
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