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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
MORTGAGE FRAUD:
“CRIMEFACILITATIVE ENVIRONMENTS”
New Century—where of the mortgages were loans with little or no documenta-
tion —was not the only company that ignored concerns about poor loan quality.
Across the mortgage industry, with the bubble at its peak, standards had declined,
documentation was no longer verified, and warnings from internal audit depart-
ments and concerned employees were ignored. These conditions created an environ-
ment ripe for fraud. William Black, a former banking regulator who analyzed
criminal patterns during the savings and loan crisis, told the Commission that by one
estimate, in the mid-s, at least . million loans annually contained “some sort of
fraud,” in part because of the large percentage of no-doc loans originated then.
Fraud for housing can entail a borrower’s lying or intentionally omitting informa-
tion on a loan application. Fraud for profit typically involves a deception to gain fi-
nancially from the sale of a house. Illinois Attorney General Lisa Madigan defines
fraud more broadly to include lenders’ “sale of unaffordable or structurally unfair
mortgage products to borrowers.”
In of cases, according to the FBI, fraud involves industry insiders. For ex-
ample, property flipping can involve buyers, real estate agents, appraisers, and com-
plicit closing agents. In a “silent second,” the buyer, with the collusion of a loan officer
and without the knowledge of the first mortgage lender, disguises the existence of a
second mortgage to hide the fact that no down payment has been made. “Straw buy-
ers” allow their names and credit scores to be used, for a fee, by buyers who want to
conceal their ownership.
In one instance, two women in South Florida were indicted in for placing
ads between and in Haitian community newspapers offering assistance
with immigration problems; they were accused of then stealing the identities of hun-
dreds of people who came for help and using the information to buy properties, take
title in their names, and resell at a profit. U.S. Attorney Wilfredo A. Ferrer told the
Commission it was “one of the cruelest schemes” he had seen.
Estimates vary on the extent of fraud, as it is seldom investigated unless proper-
ties go into foreclosure. Ann Fulmer, vice president of business relations at Inter -
thinx, a fraud detection service, told the FCIC that her firm analyzed a large
sample of all loans from to and found contained lies or omissions
significant enough to rescind the loan or demand a buyback if it had been securi-
tized. The firm’s analysis indicated that about trillion of the loans made during
the period were fraudulent. Fulmer further estimated billion worth of fraudu-
lent loans from to resulted in foreclosures, leading to losses of bil-
lion for the holders. According to Fulmer, experts in the field—lenders’ quality
assurance officers, attorneys who specialize in loan loss mitigation, and white-
collar criminologists—say the percentage of transactions involving less significant
forms of fraud, such as relatively minor misrepresentations of fact, could reach
of originations. Such loans could stay comfortably under the radar, because many
borrowers made payments on time.
