FM Commentary

FM Commentary

Combating Mortgage Fraud

Nancy Jardini Mortgage fraud adds a cruel twist to an already challenging housing finance market. Scammers take advantage of borrowers and lenders by misstating, misrepresenting, or omitting essential information in a real estate transaction. Last year, according to FBI reports, the overall cost of mortgage fraud reported by the industry exceeded $3 billion.

Our data on loans that were originated and that we acquired after 2009 reflect that mortgage fraud has declined, yet suspicious activity reports (SARs) filed by financial institutions with the Financial Crimes Enforcement Network (FinCEN) have doubled during the past five years, reaching nearly 94,000 in 2011. What explains this apparent contradiction in the data? The answer is two-fold. 

First, reports of suspicious activity often trail loan origination by several years. The increase in SARs is largely due to financial institutions recently discovering fraud that occurred in loan originations from years earlier. As a loan goes through the foreclosure process, reviews of the loan, the property, and the payment history often provide a clear picture of information that was falsified or concealed from the lender during the loan origination process.

The second reason for the increase in SARs since 2009 is the migration of deceptive activity away from new loan originations into servicing- and foreclosure-related activities. We have noted a growing number of fraud allegations related to servicing or real estate owned (REO) transactions.

Typical foreclosure-related schemes include an REO agent who fails to submit all offers on a property so that an accomplice can win the bid with a lower offer, or a scammer who conceals information in order to profit from short sale or REO flipping schemes. Other schemes include equity rent skimming, or denial of a servicer’s authority or of a financial instrument’s validity – such as sovereign citizen schemes. (See a description of "sovereign citizens" and the types of offenses they commit on the FBI's web site.) In one such example, quick action by Fannie Mae, the FBI, and the Federal Housing Finance Agency’s Office of the Inspector General promptly resulted in the arrest of one notorious so-called sovereign citizen, which prevented him from falsifying deeds and taking possession of nearly two dozen Fannie Mae-owned properties. 

Another fraud tactic that has been observed involves the targeting of financially distressed homeowners with undelivered promises to resolve the homeowner’s financial problems in exchange for an advance fee. In fact, FinCEN data indicates that nearly half of all recent suspicious activity reports filed involved questionable foreclosure rescue or loan modification scams targeting distressed borrowers.

To help educate and protect homeowners, Fannie Mae initiated the creation of a coalition of federal, state, and local law enforcement agencies, industry participants, and non-profits in a public education campaign and consolidated consumer complaint database ( In addition, Fannie Mae’s Know Your Options website offers consumers information about alternatives to foreclosure and warns them about potential scams.

Fannie Mae works in partnership with lenders and others in the housing finance industry, so we have a singular perspective on mortgage fraud. Reducing exposure to mortgage fraud is taken very seriously by Fannie Mae and by law enforcement, and our mortgage fraud team provides law enforcement with detailed information on mortgage and financial frauds to help in criminal investigations and prosecutions. A demonstration of this commitment is the increasing number of law enforcement investigations on which Fannie Mae has assisted – the number has tripled over the past two years.

We also work to help educate both homeowners and lenders. Since 2009, more than 20,000 people have attended our mortgage fraud presentations and our Mortgage Fraud Resources page received 65,000 visitors.

We are seeing the impact of these broad educational efforts about mortgage fraud. As stated earlier, mortgage fraud incidence has declined on Fannie Mae’s new book of business, and FinCEN reports that financial institutions are increasingly able to spot potential fraud before it happens and thus help to prevent it. That is welcome news in the effort to combat mortgage fraud.

Nancy Jardini
Senior Vice President
Chief Compliance Officer

June 4, 2012

The views expressed in these articles reflect the personal views of the authors, and do not necessarily reflect the views or policies of any other person, including Fannie Mae or its Conservator. Any figures or estimates included in an article are solely the responsibility of the author.

Want to comment on this topic?

Send an email

Your contribution is subject to our Privacy Statement and Legal Disclosure.