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See the interview with Chris Swecker on "CBS This Morning" on 7/11/12
 

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See the movie this Christmas about the crimes Chris Swecker uncovered while in charge of Mortgage Fraud at the FBI

 

 

Swecker Captures Atlanta Olympic Bomber Eric Ruloph:

 

 

 

Chris Swecker's TESTIMONY BEFORE CONGRESS in 2004:
 

STATEMENT OF CHRIS SWECKER, ASSISTANT DIRECTOR, CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF INVESTIGATION

Mr. SWECKER. Good morning, Mr. Chairman and members of the subcommittee. I want to thank you for the opportunity to testify before you today about the FBI's efforts——
Chairman NEY. If you would just move the mike a little closer.

Mr. SWECKER.—in combating mortgage fraud.

Although there is no specific statute that defines mortgage fraud, each mortgage fraud scheme contains some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan. The Mortgage Bankers Association projects 2.5 trillion in mortgage loans will be made this year. The FBI compiles data on mortgage fraud through Suspicious Activity Reports filed by financial institutions and HUD Office of the Inspector General reports. The FBI also receives complaints from the industry at large.
A significant portion of the mortgage industry is void of any mandatory fraud reporting. In addition, mortgage fraud in the secondary market is often underreported. Therefore, the true level of mortgage fraud is largely unknown. The mortgage industry itself does not provide estimates on total industry fraud. The industry provides incomplete or inconsistent fraud data. Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing.
The FBI investigates mortgage fraud in two distinct areas: Fraud for Housing and Fraud for Profit. Fraud for Profit is sometimes referred to as ''Industry Insider Fraud'' and the motive is to remove equity, falsely inflate the value of the property or issue loans based on fictitious properties. Based on existing investigations and mortgage fraud reporting, 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders. These schemes involve industry insiders to override the lender controls.
Fraud for Housing represents illegal actions perpetrated solely by the borrower. The simply motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding income or employment history to qualify for the loan.

In the past 18 months, the FBI has been evaluating the effectiveness of its national mortgage fraud program. In June, 2004, I authorized the consolidation of the mortgage fraud program into the Financial Crimes Section of the FBI's Criminal Division. Previously, mortgage fraud that impacted government programs, for example, HUD, was managed by another section. Mortgage fraud affecting financial institutions was managed by the Financial Crimes Section. This consolidation provides the FBI a more effective and efficient management over mortgage fraud investigations.


Second, I encouraged an overall strategy to address mortgage fraud on a proactive basis, utilizing partnerships of Federal agencies, State and local law enforcement, regulatory bodies and private industry.


Third, I assured adequate personnel resources were dedicated to emerging mortgage fraud problems in regions of the country encountering the greatest levels of fraud.


And finally, the FBI adopted an overall strategy to focus on insiders harming the industry in order to disrupt and dismantle entire criminal enterprises.


The FBI defines industry insiders as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title insurance employees, mortgage brokers, loan originators and other mortgage professionals engaged in the mortgage industry. Through a mandatory reporting mechanism, industry insiders would be the front line in preventing mortgage fraud. Zero tolerance within the industry, combined with a mandatory system of reporting fraudulent activities to the FBI and HUD, would be a major step in addressing mortgage fraud.


The potential impact of mortgage fraud on financial institutions in the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage-backed securities, which will result in higher interest rates and fees paid by borrowers, limiting the amount of investment funds available for mortgage loans.

Often mortgage loans sold in secondary markets are used by financial institutions as collateral for other investments. Repurchase agreements have been utilized by investors for protection against mortgage fraud. When loans sold in the secondary market default and have fraudulent or material misrepresentation, loans are repurchased by the lending financial institution based on a repurchase agreement. As a result, these loans become a nonperforming asset, and in extreme fraud cases, the mortgage-backed security is worthless. Mortgage fraud losses adversely affect loan loss reserves, profits, liquidity levels and capitalization ratios, ultimately affecting the soundness of the financial institution itself.


Over the past 5 years, the FBI has implemented new and innovative methods to detect and combat mortgage fraud. One of these proactive approaches was the development of a property flipping analytical computer application, first developed in the Washington field office to effectively identify property flipping in the Baltimore and Washington areas. The original concept has evolved into a national FBI initiative which employs statistical correlations and other advanced computer technology to search for companies and persons with patterns of property flipping.


As potential targets are analyzed and flagged, the information is provided to the respective FBI office for further investigation. Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then repurchased several times for a higher price by associates of the ''flipper.'' after three or four sham sales, the properties are foreclosed on by victim lenders. Often properties are ultimately repurchased for 50 to 100 percent of their original value.


Other methods we have used include undercover operations and wiretaps. These investigative measures often result in collecting valuable evidence and provide an opportunity to apprehend criminals in the commission of their crimes and reduce losses to financial institutions. These proactive methods do not preclude historical investigations; however, they provide the FBI with additional tools to conduct large-scale investigations through operational efficiencies.

As far as trends, there are many mortgage fraud schemes. The FBI is focusing its efforts on those perpetrated mostly by industry insiders. The FBI is engaged with the mortgage industry in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, and mortgage identity-related theft.


Equity skimming is a tried and true method of committing mortgage fraud and criminals continue to devise new schemes. Today's common equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy or foreclosure to dupe homeowners and investors.


Property flipping is nothing new. However, once again, law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies to conceal their methods and override lender controls. It should be noted that identity theft in many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online resources have also assisted the criminal in committing mortgage fraud.


The FBI and its law enforcement industry partners are working together to identify these trends and develop techniques to thwart illegal activities in this area. The FBI focuses on fostering relationships and partnerships with the mortgage industry to promote mortgage fraud awareness.


Over the past 2 years the FBI has spoken and participated in various mortgage industry conferences and seminars, including those sponsored by the Mortgage Bankers Association. This year, we will be speaking at and participating in the MBA's 91st Annual Convention and Expo. The MBA estimates that 6,000 industry leaders will attend that conference.
To raise awareness of this issue and provide easy accessibility to investigative personnel, we have provided contact information for all FBI mortgage fraud supervisors to relevant groups, including the MBA, Mortgage Asset Research Institute, Fannie Mae, Freddie Mac and others.

Additionally, we are collaborating with industry to develop a more efficient mortgage fraud reporting mechanism for those not mandated to report such activity. This Suspicious Mortgage Activity Report or concept is under consideration by the Mortgage Bankers Association.


The FBI supports providing a safe harbor for lending institutions, appraisers, brokers and other mortgage professionals similar to the provisions afforded to financial institutions providing ''safe harbor'' information. The ''safe harbor'' provision would provide necessary protections to the mortgage industry under a mandatory reporting mechanism. This will also better enable the FBI to provide reliable mortgage information based upon a representative population in the mortgage industry.
A recent analysis of mortgage industry fraud surveys identified 26 different States as having significant mortgage fraud problems. Although every survey identified Florida and Georgia as having significant mortgage fraud-related investigations, the survey also identified nine other States in the South and Southwest, seven States in the West and five States in the Midwest as having mortgage fraud problems. Once again, these studies illustrate the need for increased coordination among industry and law enforcement on mortgage fraud.


In conclusion, the FBI is committed to increasing liaison and education efforts and partnering with Federal, State and local enforcement and private industry to combat mortgage fraud. We support new approaches to address mortgage fraud and its effects on the U.S. Financial system to include a mechanism to require the mortgage industry to report, fraudulent activity and the creation of ''safe harbor'' provisions to protect the mortgage industry under a mandatory reporting mechanism.
Mr. Chairman, the FBI looks forward to working with you and other members of this committee on solving this problem. I thank you for allowing me the opportunity to testify before you today, and I will be happy to entertain any questions.

Chairman NEY. Thank you for your testimony.

 

 

 

For more information call Bill Span at 425 827 2431 or email

See the interview with Chris Swecker on "CBS This Morning" on 7/11/12

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