The Chairman of the Mortgage Bankers Association (MBA) told the New York State Assembly yesterday that while it’s true that unethical “actors” in the real estate finance industry make bad loans, policymakers should take care in their efforts to protect consumers and not inadvertently restrict the availability of credit for worthy borrowers.

“We all share the same commitment of developing better protections for consumers against abusive lending and foreclosures and assuring that these borrowers continue to have the financing they need,” said Robbins. “I urge you to not smash this subtle, intricate and ingenious system of real estate that we have created as we fix problems in the subprime market.”

In his testimony, Robbins pointed out that more than 1 million Americans used a subprime loan to purchase their homes last year. He then reminded Assembly members that homeownership across the country was near record highs and that subprime loans have played a crucial role in closing the gap between the overall homeownership rate and the minority rate.

Addressing the current troubles in the subprime arena, Robbins cited a confluence of factors, including a slowing of home price appreciation and the weakening of the job market in some parts of the country. He reminded lawmakers that neither was a particularly large problem in New York and that the state’s overall delinquency (4.82%) and foreclosure (1.11%) rates were below the national average (5.31% and 1.19% respectively).

Robbins also said that 35 percent of New Yorkers own their homes free and clear and only 17 percent of have a subprime mortgage, and of that 17 percent, 83 percent are paying their subprime mortgages on time. New York’s subprime foreclosure rate is below the national average.

Robbins pointed out some of the steps the industry is taking to help borrowers who find themselves having trouble paying their loans–including partnering with NeighborWorks America, a national nonprofit organization to promote their free counseling hotline, 888-995-HOPE, manned by the Homeownership Preservation Foundation.

Robbins called on legislators to join with the Real Estate industry and consumer advocates to address the current problems in the subprime market while making sure that subprime loans remain available for those who need them.

“Subprime loans must remain a viable option for lenders to use to increase homeownership,” said Robbins. “Working together, we can stabilize and preserve the subprime mortgage credit system, provide assistance for homeowners facing foreclosure, and finally, prevent this from ever occurring again.”

A federal grand jury in Indiana has indicted a 35-year-old Fort Wayne mortgage broker on wire fraud charges in connection with multiple loan applications he filed for the purchase of more than 50 homes. From The Indianapolis Star:

The indictment returned [last] Thursday charges that Justin L. Stuckey, the owner of Maximum Mortgage in Fort Wayne, obtained fraudulent loans in 2002 for investors buying rental properties. Stuckey also faces a civil lawsuit over allegations that he was involved in some $5.5 million in mortgages that resulted in nearly 150 home foreclosures.

Attempts to reach Stuckey on Thursday for comment were unsuccessful, The Journal Gazette reported. Stuckey, however, told the newspaper in March that he had done nothing wrong.

“If I did anything illegal, it’s been almost five years since those loans were made. I would have been charged by now,” Stuckey said. “I could write those loans again today. …I just want this stuff to end so I can get back to doing my business. It’s what I’m good at.”

The indictment charges that the mortgage applications submitted by Stuckey falsely claimed his clients had owned the properties in question for at least a year, had at least 20 percent equity in the properties and wanted the loans for refinancing.

Transmitting false information across state lines to obtain a mortgage is a federal crime. The bank involved–ABN Amro–is based in Ann Arbor, Mich., and the money transmitted to the title company closing the loans went through a bank in Florida.

Attorneys for the property owner, the appraiser and the title company have all said their clients have done nothing wrong.

Amro’s fraud expert, Lorie Miller, has testified the bank’s computer records show that after Stuckey entered the information for a loan application that was denied, he went back in four more times and changed numbers until it was approved. Among the changes, Miller testified, was raising the appraised value of the house 25 percent and increasing the borrower’s assets.

The United States Attorney’s Office for Northern Indiana emphasized that an Indictment is merely an allegation and that Stuckey is presumed innocent unless proven guilty in court.

Georgia’s push to irradiate real estate and mortgage fraud began with the premise that the victims of fraud are not just large, faceless financial institutions. The victims–as Flipping Frenzy readers well know–include individuals and damaged neighborhoods and communities where fraud-related delinquencies and foreclosures contribute to the deterioration of residential properties, resulting in lower home values and distorted tax assessments. In Georgia, many homeowners and community leaders became concerned about the impact that extensive fraud activity was having on the quality of life and real estate in two of the state’s neighboring counties near Atlanta.

Some of the affected neighborhoods became homes for squatters, drug traffickers, prostitutes and car theft rings.

In March of 2001, a loose confederation of people interested in addressing mortgage fraud met for the first time. They called themselves the Georgia Real Estate Fraud Prevention and Awareness Coalition (GREFPAC) and characterized themselves as “outraged at the impact [of mortgage fraud] upon their families’ and neighbors’ quality of life and safety.” According to the latest Mortgage Bankers Association / Mortgage Asset Research Institute Periodic Mortgage Fraud Case Report, GREFPAC deserves significant credit for mobilizing, educating and energizing many of the parties involved in Georgia’s attack on fraud.

In late 2003, the Georgia Department of Banking and Finance made the fight against mortgage fraud a priority by introducing a new examination program that focused significant resources on anti-fraud efforts. Subsequently, the number of Cease and Desist Orders and license revocation actions rose dramatically.

In May of 2005, the Georgia Legislature responded to passed the Georgia Residential Mortgage Fraud Act. In doing so, Georgia became the first state to criminalize mortgage fraud and provided severe penalties of up to 10 years in jail for first offenders and 20 years per property for violations involving multiple properties and loans. The legislation became effective immediately upon being signed by the governor and, within days, four people were arrested and charged under the Act.

About the same time, Georgia’s Department of Banking and Finance took steps to have all of its mortgage examiners trained and qualified as Certified Fraud Examiners.

Law enforcement officers set up sting operations in which more than three-dozen arrests were made at, or near, the closing table. Additional arrests, indictments and prosecutions followed at both the state and federal levels. They focused on mortgage brokers, bank officers, closing attorneys, paralegals, Real Estate agents, appraisers and straw borrowers involved with multiple properties. One closing attorney received a 30-year federal sentence, and jail time was handed down for others involved with her—paralegals, mortgage brokers, real estate agents, appraisers and a money launderer.

Today, some six-plus years after Georgia sprung into action, there continues to be dialogue, interaction, education efforts and cooperation among members of the Real Estate industry, their regulators, representatives of victimized neighborhoods and law enforcement. The FBI, the Georgia Department of Banking and Finance, and the offices of the U.S. Attorney and the Georgia Attorney General have conducted training. Cooperative investigations have involved local police, the Georgia Bureau of Investigation, the FBI, HUD, IRS, U.S. Secret Service, FDIC, the VA and the U.S. Postal Inspection Service.

The result: MARI’s latest Periodic Mortgage Fraud Case Report shows that Georgia has the greatest improvement from prior years’ rankings, slipping from first and fourth place nationwide in terms of incidences mortgage fraud in 2006.

The Mortgage Bankers Association (MBA) and the Mortgage Asset Research Institute (MARI) have combined efforts to compile and release the Ninth Periodic Mortgage Fraud Case Report. The report examines the current state of residential real estate and mortgage fraud and misrepresentation in the United States based on participating lenders’ reports to MARI.

Highlights from the report include:

• The number of reports in MARI’s Mortgage Data Industry Exchange database pertaining to 2006 originations is approximately 30 percent higher than the number of reports for 2005.
• Mortgage fraud is now more evenly distributed across nearly all states whereas, in prior years, reports tended to be concentrated in relatively few states.
• The current unsettled state of the subprime segment of the industry does not bode well for fraud in the coming year.
• There are changes in the rankings of the states in terms of their mortgage fraud experience, with Florida taking over the top spot and Georgia showing the greatest improvement from prior years’ rankings. Florida had more than twice as many incidences of fraud reported, and has gradually climbed to the top spot over several years, after ranking fourth in the nation in 2005, fifth in 2004, seventh in 2003 and 12th in 2002.
• The most common types of fraud found to date in 2006 originations are in the areas of employment history and claimed income.
• California’s reported fraud had been quite low in the past few years, and some industry experts have suggested that its problems were masked by high real estate appreciation. The recent slowdown in its housing market may explain California’s return to high ranking in this year’s report.
• The early payment default data for prime loans from First American LoanPerformance is highly influenced by tragic weather events on the Gulf Coast, and few valid conclusions can be drawn from the most recent results. However, this is not the case for subprime loans.

One bright note: After leading the nation for the past four years in overall mortgage fraud and subprime incidents, Georgia has dropped in the top 10 states for 2006 fraud reported to date. This dramatic development appears to be due, in large part, to the strong, coordinated stance against mortgage fraud that has been taken by a number of different groups in Georgia–industry members, mortgage and banking regulators, legislators and state law enforcement officials, coupled with the FBI and the United States Department of Justice.