mortgage fraud - american civil liberties union · mortgage fraud is committed for one of two...

Federal B ureau of Investigation San Francisco

SA

FBI Citizens Academy

April 29, 2010

Mortgage Fraud

at "Retail Mortgage Fraud" — Loan Origination Fraud

— Short Sale Fraud

— Foreclosure Rescue Fraud

— Builder Bailout Fraud

— Anything else you can (or can't) think of fraud...

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.1.D7C

The Current State of the old Mortgage Fraud 'Tools" House recently sold for $1.75 on eBay

(Sold In October 2609 - Saginaw, Michigan)

FBI014818 ACLURM014704

Mortgage fraud is committed for one of two reasons

Most Common Type of Mortgage Fraud Across The United States

The classic property "flip."

Properly-flipper purchases a property for 5200,000

Properly-flipper fins the property f • ah opprniseil for Properly- 3400,000. Dipper sells the

property for S400,000, and

walks array with a 3200,000 prom.

The book is lets witli as S400,000mortgage on n $200,000lanne for a loss of S100,000, If Ilse loan ens FIIA insured, the government absorbs die loss.

one tonally. results In foreclosure

Number of SAlts received lossAnnimus in hlilliass

Ma so oFraud Commorcla LoinFra 4 FaIsoSinment

Most Common Type of Fraud in the Bay Area

mi Fraud for Profit/Commissions

is Orchestrated by Real Estate Professionals — Mortgage Brokers

— Loan Officers

— Real Estate Agents —Anyone who makes a cut of the commission

when a transaction closes.

Number of Violations of Mortgage Related Fraud SARS

Fiscal Years 2003— 2010 (101112002— 3/3112010) Nationwide

SARS in General

si Suspicious Activity Reports — Tens of Thousands of SARS —Billions of Dollars in Estimated Losses

tEl Important Tool for FBI

— Direct Resources —Assist With Ongoing Cases —Track Trends

Dollar Loss Amounts or Mortgago Related Fraud SARS

Fiscal Years 2003— 2010 (101112002— 3/31/2010)Nationwide

OFiscalYear2003 CIFiscal Year 2004 CIFIscol Year 2005 El Fiscal Veer 20061 FISeal Yee/ 2007 a FiscalYear 2006 12 Fiscal Year 2009 a Fiscal Year 2010

0 Fiscal Year 2003 OFIscal Year 2004 0 FiscotYesr 2005 13 Vse,a1Year 2000 O Fiscal YO4t2007 a FIscal You 2000 td Fiscal Year 2009 OF scat Year 2010


Sisit 1:1 05",.54/I1/211111

734 1000

500

A' ' FY 2004 071023 FY 2005 FY2007 re 2009 FY 2009 FY 2010

0703131 11312100 1 0 Cases Opened During Fiscal Year

.1,1.1.114 n Ill)) DA. S.,neo C33,3.3 Ittia Sumer: 91311 FY 2304 CFIC33, FY 200,-0001-..025,1211429211; &FY 20073 3..3,329 033■”atent 034

oplatal0 l0 NOS 3,443,1111 10 004 13.t3Sourut 10119A 1,e10,0133,130.13

Mortgage Fraud Cases Opened Fiscal Years 2004 to 2010

2000/

1500

Mortgage Fraud Cases

Fiscal Years 2005 - 2010

4,000-

3,000

2,000" 3

1,000

FY 2003 FY2006 FY2007 FY2000 FY2000 FY2010

1 0 Convictions1P70 Otnformadonsllndiciments 13 Cases Pend ng

Mortgage Fraud Stats

Fiscal Year 2007


Fiscal Year 2008

3500,003,000

$0

$2,500,000,000

52,000,000,000

51,500,000,000

51,000,000,000

5500,000,000

50

$1,000,000,000-7

32.1119,6 047

3

Z$11.

51.640.124

FY 2007 FY zoos

I 0Restitutions CI Recoveries C Fines) 1 0 Restitutions ai Re cove ri e s O Fines

4000-" Steady Growth In Pending Cases

boat. 000

2000"- 1,g4

9

0

Pending Mortgage Fraud Cases Fiscal Years 2003 to 2010

FY 200,2031001 0e.s11112005-2001-32 19.62111211N FY zoor-cutent•tzscuteornant only

1,204 1000' 4 72-1--8,

:r131j5in,

FY 2003 F121100 FY 2905 F12006 FY I9102 112001 FY2009 FY 2010

GI Cases Pendirttil

FBI Statistics

03 Reflect Increase in: — Reporting of Crimes — Resources Allocated — Approach to Investigations


Iv 10 MORIP9. FmudHol epata

Erthergiva

Maas Frnd Auras

Saur.111120071.1••■..• baud ••••■,

Emerging Schemes

® FBI Always seeking to ID new Schemes

is FBI Annual Mortgage Fraud Report — Produced with the Assistance of the Mortgage

Industry

— Identifies Emerging Schemes

Step 1 fl Step 2

ilt Step 3 Pi ElkePerdcallsrffetyn LtariOnehar dins tonOrorerts Adam

salnlinternveley. andeelirlittedirpini Maenad vele (11240,0:0 lib* 14470,i0r0

41,08 hat,

Step 5

4 0AidefOves0eh0,e0

Step 4

ltre4rfutissixelsobat tf $201090tekstaill010,01

xaspidtottebtitr,obirg • to*.

• pg.t. Iiina,deknirviromtr M4101%ddeirrsisgLeadte kW.** 'glad Efts

53,000,000,000-'

52,000,000,000,

52,000,000,000,

51,500,000,000-

51,000,000,000 -•

5500,000,000-

50

11.11,41urco

Mortgage

Fiscal

Fraud Stats

Year 2009

52,000,000,000

51,000,000,000

51,200,000,000

5800,000,000

5400,000,000

SO

ILICASOLUCCA ISR/V1

2.141,49

X

57 504 431 558.4522514

I:7 F12149

1 0 Restitutions 0 Recoveries 0 Fines]


Fiscal Year 2010

FY2010

la Restitutions 0 Recoveries 0 Fines I

n1.lan114 11 31011

Where is the crime problem? 14 FBI field offices reside in the top ten mortgage fraud hotspots as identified through Intelligence from multiple source Indicators.

11'01 usit'i 11" n)

MIN .00,r, 111-1111,10" 11P

FBI Mortgage Fraud Cases By Region

Southeast 22%

South

Northeast Central 10%

18%

North

Central

k.

West

27%

23%

Re-emerging Scheme: Builder-Bailout

4


tZoyAl. Vint

Buy a new tiothe at Royal •View; Get a second

new hortie, at cityscape. 'FREE!

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daa pcopetts vok.e. bare ed *Wm orittbed plomloo<om.

I Coraplatal

• Does the lender know about the 2"(1 Home?

• Gad. [doe 172.12V.:Ion Noddy lop • Ondd 1.7do trIZPIrot el Edge* bonds woo pod. mod KV Gottge, • Spam Floorproot rod Devignor features.

TT, Rendyl Open Dolly

Michael Crews Tour. Available! 9 a.m.- .5 p.m. • ... , veveyvankhaelerews.com Call 760-751-1212

lir oer pl • Y.:v./mm..1.mo.

rood., odd prod, sordwoo........coddrtoo. oodoodod.o...

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Emerging Scheme: Short-Sale Fraud

Strokorier hem the kri.. Pre. ore "Kb, ProVOrM Prao.th. W

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et pato tendesureni thoUlletore xdkoodeos red re thomrpom.,1 dd.*, two., mon roo ems. ha /emirate. the MINIM mermen& 17.6 wool:storm Wlalmn.b rocasnd ha reuretdbuye ha shot rebs.

mceltieekverS,Paot*..

unix W.rsdtla rm.tereter plflla pepody emu* sot loo Mo oaud voLo for o per,.

th.th.redOge 0.0.M.1 hes erogert, elder tatted • dibentdoct AMU, to orcurun rrctortY110.

Re-emerging Scheme: Foreclosure Rescue Scams

Step 1

eP 3 r Pop.. ccrotaes

•

bond.' Hamm Nyconson tke, Inet

Icreltaro boo/led traders ordapIndlen.

What leer T................„,

al <----___..met 5 deed mute Pr/R.:tubs

NW Weer. littd11.4 Ms docel em It

. oroxletsdonf hoof both, l'orpirdo

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Waite. reeeaoreer

I St ep

ThoPeirerMo senhnteriorms•Atett thrioneworeisloml*e.

• tep 4

Default on House #1 Live in House #2?

Mortgage Origination Fraud Results Foreclosed/Abandoned Homes

Mortgage Crisis Reverses Tide of Urban Renewal

5


LA Times 03/17/2009

a "Nearly a year after the FBI set up a task force in Southern California, the state has dropped from fourth place to eighth for mortgage fraud, according to a report released Monday by the Mortgage Asset Research Institute, a branch of data firm LexisNexis.

287

$1,07 Billion In estimated

losses

173

11 II LILI111100-

Operation Malicious Mortgage March 1, 2008 to June 18, 2008

Acosta

Defendants Convictions

Sonfrmeinga Charged

Seized Assets from Operation Malicious Mortgage

600

260

6

Operation Malicious Mortgage

iHundreds of Agents! tliHundreds of Bad Guys! ABillions of Dollars! AMassive Asset Seizures! 311Long Prison Terms Expected!

Seized Assets from Operation Malicious Mortgage

How the FBI Responded

oa More Resources (Field/NMFT) al Innovative Intelligence Products ai Innovative Investigative Strategy Fa "Fast-Track Prosecutive Strategy 03 Working Together:

—Task Forces ti IRS, USSS, USPIS, FTC, TARP, State/Local Etc.

a Operation Malicious Mortgage


Weight of One Million USD

Denomination Kilos Pounds

$1 909 2,000 $5 182 400

$10 91 200 $20 45 100 $50 18 40 $100 9 20

Volume of One Million USD in $20 Bills

3 Stacks

6.1 Feet or

1.87 Meters

High

The Old Way

D3 Bulk Cash Smuggling

7


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i**'"" ox0.174 Moo OW aud

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WM MOM IN Opta W41.'41 mete. s 41nOatlirdn0.4 I

4

$231,340 Secreted in a bicycle tire discovered in the Miami International Airport

$65,221 - 46 pellets ingested ($700 each), 35 pellets on body, in addition to cash on hand The New Way

to Stored Value Cards tm Pre Paid Cards

Digital Currency

Anonymous Cards Stored Value Cards Pr'epaid Cards

An Emerging Threat

A A Money Laundering Tool

8


Prepaid Cards: Open System

a Used to make purchases or access cash using the

MasterCard and Visa global payment networks

a Cards are marketed to: — Unbanked, teens, and others without a credit card

—10 million households in U.S. are unbanked; significant number are Latino immigrants.

Senders/receivers of cross-border remittances

a Remittances sent from U.S. were —$34 billion in 2003

a —50% of individuals in U.S. who send remittances are unbanked

— People who need help budgeting

Corporate & Securities Fraud

to Complex Long Term Investigations

i Nationwide Partnerships — FBI, IRS, SEC, TARP etc.

Sub-Prime Meltdown Timeline

Open System Prepaid Cards

Bank-issued, but no bank account is equired


2004

June

Federal Reserve began a series of Fed Funds Rate increases. By June 2006, (here will have been 17 consecutive increases raising the rate from 1% to 5.25%.

2006

December The weakest Sub-Prime mortgage originators begin to fail; by December 2007, over 110 mortgage origination companies will have closed their doors.

2007

April

New Century (2.' largest originatorof Sub-Prime loans) tiled for bankruptcy.

UCLASSIFIEllf0110


2007 Bear Stearns announced that investors in their Sub-Prime hedge funds would receive little or no recovery; the two funds had lost 90% of their value.

August

November Goldman Sachs forecasted Sub-Prime losses for the financial sectorwould reach $400 billion.

2008

April

INICLASSIFIEDhOU0

2008

Ralph Ciotti & Matthew Tannin are indicted and arrested on Securities Fraud and Insider Trading charges related to the failure of the Bear Stearn's Sub-Prime based hedgetunds.

InclyMac Bank, located Pasadena, California, became the second largestThrift in U.S. history to fail and be assumed by the FDIC.

August Investment houses begin to settle Auction Rate Securities cases with a number of Slate regulators.

September Walt Street is radically transformed: Fannie Mee & Freddie Mac are taken over, Lehman Brothers declares bankruptcy, Bank of America purchases Merrill Lynch & a 3700 billion Bailout is issued.

1.11XLISSFENT01.10

July

RealtyTrac announced that foreclosures had risen 93% in one year.

Sub-Prime losses reached 5232 billion and the IMF estimated that financial institutions world-wide may face losses of 3945 billion over the next two years.

June

July

9


Fund Loan Credit

Bank

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aerie 500 inItlernr leetcFs $15013

ins tx-nclirng: LVIoilaciy evn iiiiii 41.p1 tar aaaaa

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Current Loan Origination Structure

SUB-PRIME COLLAPSE

• 80.2% of socuritizod sub-primo loans originated during 2005 had adjustable talcs.; 74.0% of these loans were 2128 adjustable-rate loans.

• Those ARMS had fixed mortgage rates for the first two years after origination • and were subject to reset in 2007.

ftuR• Som■r■ I al leral 1/81.•■■

10

ks) The Previous Mortgage Loan Process

L Loan Origination

Union

Hold in POrifotor Collect

Payments

ARAI' for

Loan

Home Buyer

LIIICLASSMENTOUCAES

The Sub-Prime Loan Process

Investors Pension Funds

Ole Inasence Camellias Other Commercial Bunke

Stele a Local Governments Cenbyll Bente •

Fund Minato= The Public

Bralieniiin Finns

9pecial Purpor Entifes.

Loan Origination —AB u<l- fril.e

Secondary Markel

1.117CLASSIMISITOU0

FBI Statement to Congress in 2004

C "The potential impact of mortgage frfaul on Aunzcial institutions and the stock market is clear. If fraudulant practices become systematic within the mortgage industry and mortmejraud is allowed to become unrestrained, it will ultimately placelinancial institutions at risk and have adverse effects on the stock market."

— Chris Sweeter, Former FBI Assistant Director, Criminal Investigative Division, Introductory Statement: House Financial Services Subcommittee on I lousing and Community Opportunity, October 7, 2004.

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s■us Tors I -11Eiri II icsra


Pressure at Mortgage Firm Led To Mass Approval of Bad Loans Br Oanz,Cu

Moi the Moism...Wed th oho kthalthe loleontha hooding the oidth of dodo with a baci.11taths they scant through her other.

og:Beang/ 1'th nth the tonkthelther'the math

no morel:3gal Oen • Too mold, thot." Denif The 6414114a 4e lop of het desk Al 00 ZpingSer for o °tampon), noted New Conmryranancdl Haelothethe ,opposed w,n4tht hth thoett.n2enpfththtioth.guatot the Motthape opplantions Hordithan rt. vinvoel hodprobfecth akethad

Bol'yeudidn'twool to lona way {on be-mute heihrouhl brook these:faho mount• ed lo iltenrieum. Mem the did, M boa. • often ortheoloal het and found another opxairruai0s 00011

etopthyees 04 New century that shed heth thth on no unfolding &nate io the nothlthpe indothi. one that could east as many th 2 maw Aorrican forotleh their homes and Nation too sphl over lobo the Inntheteeneemp

New army hos tease the pnathse

.5oe N EN CEVII/22016.41. I

Struggling Mortgage Lender TakenOver by Regulators IndyMac to Reopen Monday Under Federal Control

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Cabman.. sfe.thipAthe etathaedtho the ..an Hasa Mau 44116000.2oitheiet a

ha,,oar of hot finance tadbrtava 37 hthoodS0 blm

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land &math these ale $.1nurs40444 e..1

'tit* 2008 STIMULUS CHECK -$1,200 qP16,

51° 414.61)ingtOn 130051t IDat

S.eizes-tontrol Of1Vlortgage 'Giants

, Tabour of Kinnie 0,4,ihri,i4.6441.4x• tti•Witniewa, And Freddie Ain,

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, . .. . G AID 601056 • $165 MiLLIOli. AIG

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. 55511 59111

11


TROUBLED ASSET RELIEF PROGRAM (TARP) -POO BILLION

^ • .

• , r . • , , 7 . " .

62fREIGIff CARS FIRED VATH WOW: OVER 1,2 010. TO PASS AT OOMPH

V1/4719"1.-

White Collar Crime Cases Conclusion What do we want?

ra The Bad Guys Assets!

—The cash you made and the toys you bought!

.Money Laundering: The bad guys always make laundering criminal proceeds a high priority.

aCrime Doesn't Pay if they can't use the money.

aWe pay the victims back and keep the rest for ourselves (DOJ - AFF).

a The Bad Guys in Jail!

Aonce•prominent San Francisco lawyer convicted of steatingfrom his poor and sickly clients lo support his luxurious lifestyle was sentenced Tuesday to more than 14 years in prison, after a federal judge upbraided him for disgracing she legal profession. NikolaiTehin "looked his victims in the eye," U.S. District Judge Vaughn Walker said.

"Nick was ready for the worst," said his attorney, Harold Rosenthal. "But he suffers quietly." For Rosenthal, however, the sentence came as a shock. "I'm floored," he Said. "This is the longest sentence Pro over had one of my clients receive in federal court."

Once he was al the top, he couldn't afford to stay Mere. Financial pressure "makes people do things they never would,' Rosenthal said, adding that his client had already paid a heavy price for his crimes, includinggiving up his license to practice law. "Mr. Tehin started at the bottom and will ultimately end up at the bottom, " Rosenthal said. "He has no savings. no retirement. He's impoverished and is going to jail. And maybe he deserves it. I'm just asking you to give him a little tight at the end of the tunnel."

Walker acknowledged Tehin's rags4o•riches story, but said his crimes called for severe punishment. "It was anAmerican success story" the judge said, "Unfortunately, it was an American success story that has gone very wrong."

12

FBI Sub-Prime Fraud Investigations

Brokerage Houses

Mortgage Broke)

Investment Banks

Sub-Prime Investigations

Mortgage Lenders I

Builders/ Developers

ltNCLISSIFEDSOU0

Qfi BERNIE MADOFF'S PON/I SCHEME - $50 BILLION

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AN FRANCISCO 4 years for lawyer who robbed clients tote tram soar, disabled tremor* My

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Number of Violations of Credit Card Fraud SARS Fiscal Years 2004 — 2010

(1011/2003— 2128/2010) Nationwide

611,500'

41,0110

20,0110

Cmlit Cant Fniutl CuurtIvrfcli Dcbli Can1 Fmull CmaliVDcbli Cunt

Frau)

0 Fiscal Veer:004 U Fiscal Vcar2005 OFE.cal Ycer20116 0 Fired Yeer21107

Fired Year211118 mFireel Year2009 N Fiscal Year20111

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ra"63 r4 F213.

13

Credit Card Fraud / ID Theft

4,9 r̀

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ACLURM014716

Dollar Credit Fiscal

(1011/2005-

Losses Reported of Card Fraud SARS Years 2004 — 2010

2128/2010) Nationwide

§ 1029. Fraud and related activity

in connection with access devices

a (a) Whoever: S1,5011

0 N1.-511 01,0114

57011

5251)

su

Dollar Losses Reported in Millions

o (1) knowingly and with intent to defraud produces, uses, or traffics in one or more counterfeit access devices;

o (2) knowingly and with intent to defraud traffics in or uses one or more unauthorized access devices during any one-year period, and by such conduct obtains anything of value aggregating $1,000 or more during that period;

a (3) knowingly and-with intent to defraud possesses fifteen or more devices which are counterfeit or unauthorized access devices;

rL ra.a

Cra WI Card Fraud Cu...fall !kW Card Fraud CreditalablI Carl

Fraud

13 Fiscal Year 2004 0 Fiscal Year 2000 ❑ Fiscal Year 2006 13 Fiscal Year 2007 0 Fiscal Year 2008 RI Fiscal Year 2009 a Fiscal Year 2010

Anybody Anywhere Under 1029

§ 1028A. Aggravated Identity Theft

(h) Any person who, outside the jurisdiction of the United States, engages in any act that, if committed within the jurisdiction of the United States, would constitute an offense under subsection (a) or (b) of this section, shall be subject to the fines, penalties, imprisonment, and forfeiture provided in this title if— (1) the offense involves an access device issued, owned, managed, or controlled by a financial institution, account issuer, credit card system member, or other entity within the jurisdiction of the United States; and

ra (2) the person transports, delivers, conveys, transfers to or through, or otherwise stores, secrets, or holds within the jurisdiction of the United States, any article used to assist in the commission of the offense or the proceeds of such offense or property derived there from.

Ex(a) Offenses.

to (1) In general.— Whoever, during and in relation to any felony violation enumerated in subsection (c), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.

ia (2) Terrorism offense.— Whoever, during and in relation to any felony violation enumerated in section 2332b (q)(5)(B), knowingly transfers, possesses, or uses. without lawful authority, a means of identification of another person or a false identification document shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 5 years.

What 1028 Does

ATM Face Plate Replacement

2 Years Imprisonment

No probation

Cannot run concurrent

(i.e. the bad guy does one stretch followed by the next, not two for the price of one!)

® A successful trend.

Does not require a "sucker" because the victim is merely conducting a transaction on a normal looking machine as they would any other time.

14


•2- Is there an additional slot ?

•FALSE slot Fixed to the original card slot. (Same color and sticker ). Contains additional card reader to copy your card Information ..and duplicate your card

3- A monitor and pamphlet holder at the side anything wrong?

4- wait Is it really a pamphlet holder .... The side of box , facing the ATM screen

has a reflective glassy hole ....thats a CAMERA!

1- Is this a Compromised ATM? It sure looks normal.

6-Inside the ''pamphlet box"

Tara BIM

oprosaued,'

-•_

15

5-False pamphlet box affixed to the ATM cubicle side

. Ito micro canioraatthasida..z. aloe thiligrj,D and nlcoUlalniNaLeSit~ pieNro ap t. 20017144re,


Caught in the Act: How they do

® At first glance it would appear as though this individual is simply performing a simple ATM transaction.

'G:34 9609 11- 9-2001 FRI

PIN Pad Face Plate: Records you type your PIN (no need for a

camera you may get in the way of).

OF gig; T51 11:1 . FQ[ECIII = F.711111

7.1P111

The Victim n Here we see the next

customer to use the machine after the tral has been set. He inserts his card and attempts a transaction.

The Capture e The card has been

captured and the customer is confused as to why this is so. However in the background we see that help is on the way or is it?

16

Setting the Trap al What he is in fact

doing is rigging the slot on the machine so as to capture (or keep) the card of the next person who uses the ATM.

The Lookout o Rigging the machine

is very risky business therefore the services of a "lookout is required in order to warn of possible witnesses and/or potential victims.

6:35:37 930H 11- 9-2001 FRI

1


The Surrender a After several attempts

the customer is convinced that the machine has captured his card. Both he and the Fraudster leave the ATM.

The Pickup Satisfied that the coast is clear the Fraudster returns to retrieve the card that has been captured by his trap. He not only has the customers card he also has his P.I.N.

The Exit ei Armed with card and

P.I.N he left and was able to withdraw $1000 from the account.

6:40:311 9e01 11- 9-2001 FRI

17

Obtaining the P.I.N He convinces the customer that he would be able to retrieve his card if he entered his P.I.N while he holds down both the "cancel" and the "enter buttons.


Identity Crimes

al Win Win Situation for the Bad Guys

in Financing & Anonymity

Identity Crime Connections c Identity crimes are usually associated with other

crimes and are used as a facilitator, through financing or anonymity, to commit other crimes: — Terrorism — Narcotics/Drug Trafficking — Organized Crime — Mail Fraud/Mail Theft (can be a precursor to ID crime) — Financial Fraud (i.e. Money Laundering) — Mortgage Fraud — Weapons trafficking — Homicide — Wire Fraud — Computer Crime

18

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mortgage fraud - american civil liberties union · mortgage fraud is committed for one of two...

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