More than 400 real estate industry players have been indicted since March – including dozens over the past two days – in a Justice Department crackdown on incidents of mortgage fraud nationwide that stem from the country's housing crisis.
The FBI put the losses to homeowners and other borrowers who were victims in the schemes at more than $1 billion.
“Mortgage fraud poses a significant threat to our economy, to the stability of our nation's housing markets and to the peace of mind of millions of American homeowners,” Deputy Attorney General Mark Filip said at a news conference Thursday afternoon.
He and FBI Director Robert Mueller said the campaign was designed to send a message that housing crime is a national problem.
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Since March 1, 406 people have been arrested in the sting dubbed “Operation Malicious Mortgage” resulting from 144 cases across the country. Sixty people were arrested Wednesday alone, including in Chicago, Miami, Houston and a dozen other regions policed by the FBI.
The sweep includes a complex Charlotte case with a recent guilty verdict, said Mike McNeely, an FBI special agent in Charlotte who works extensively with mortgage fraud cases. A federal grand jury indicted William A. McDowell last year, alleging he was a promoter in a complex mortgage fraud scheme involving multiple players. He was found guilty this month. Others have pleaded guilty.
New York were indicted Thursday, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market. The subprime crisis has forced hundreds of thousands of people from their homes through foreclosures and triggered almost $400 billion in losses and writedowns on Wall Street.
While the government has been probing mortgage fraud for years, Thursday's announcement underscored it has become more widespread
“It does go to the fact that the subprime meltdown and foreclosure crisis is not about the actions of individual borrowers,” said Eric Halperin, director of the Center for Responsible Lending's Washington office. “This is really a systemic failure.”
The increase in subprime lending created a “fertile environment for all kinds of things, including outright fraud,” said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University. Criminal activity is “one more reason why investors and lenders will continue to have suspicions about the valuations of their investments and loans.”
Mortgage fraud is a top priority for the FBI in Charlotte, said McNeely, who works full time on such fraud cases and public corruption.
Law enforcement officials said their stepped-up focus on mortgage cases aims to combat problems that have grown out of the risky lending practices prevalent until the mortgage market collapse started last year. Officials have identified 10 “mortgage fraud hotspots” nationwide in California, Colorado, Texas, Minnesota, Michigan, Illinois, Ohio, New York, Georgia and Florida.
Those named in the cases include housing developers, mortgage lenders and brokers, lawyers, real estate agents and appraisers, said Sharon Ormsby, section chief in charge of financial crimes for the FBI.
In some cases, gang, drug and organized crime investigations have resulted in mortgage fraud cases because such schemes enable criminals to launder money, Ormsby said.
Mortgage foreclosure rescue scams, which promise to help struggling homeowners stave off foreclosure and keep their homes, also have become a major problem, officials said. Typically, unsuspecting owners sign over their homes and then find they are victims of fraud.
Across the country, reports of mortgage fraud have soared over the past year as the subprime mortgage market collapsed, and defaults and foreclosures soared.
Banks reported nearly 53,000 cases of suspected mortgage fraud last year, up from more than 37,000 a year earlier and about 10 times the level of reports in 2001 and 2002, according to the Treasury Department's Financial Crimes Enforcement Network.
In recent months, the FBI has been investigating more than 1,400 mortgage fraud cases and 19 companies – including Bear Stearns – tied to the subprime mortgage crisis.
Staff writer Stella M. Hopkins, The Associated Press and Bloomberg News contributed.