Mortgage fraud reports increase
The shadow of a house key falls over a mortgage application form.
Kai Ryssdal: We'll take a quick pivot here from one crisis to another: budget to housing. The heyday of no-money-down, no-doc mortgages may be behind us, but that doesn't mean the real estate's completely above board. In fact, fraud is a bigger problem than ever. The Treasury Department says suspected mortgage fraud hit an all-time high in 2010. You've heard of house flipping? Well, the stuck-in-the-mud housing market has spawned a crime that's being called "house flopping."
Marketplace's Stacey Vanek Smith reports.
Stacey Vanek Smith: The Treasury Department said reports of fraud in the housing market have doubled since 2006 -- more than 70,000 suspected cases last year.
Ann Fulmer is with InterThinx, which helps financial institutions track fraud. She says most of the fraud is happening in places that were hardest hit by the housing crash.
Ann Fulmer: And that's in part because people are trying to get out from underneath mortgage debt.
Fraudsters are charging hefty upfront fees to people who are trying to negotiate lower home payments, says mortgage fraud expert Richard Hagar.
Richard Hagar: Loan modification scams. Those are increasing monstrously, maybe 100 percent per year right now.
Common practices in the bubble days have also changed with the times. Take house flipping. In today's post-bubble market, flopping is the new flipping, says Hagar.
Hagar: Often some real estate professionals will encourage the appraiser to come in low and then they use the appraisal to convince a seller or the bank to sell the property for way under market value. And then these real estate professionals buy it and turn around the next day and sell it for more.
Scams like this have made banks distrustful of appraisers, says Wharton professor Susan Wachter. And banks own thousands of foreclosed homes that they must sell.
Susan Wachter: The difficulty of banks to verify that in fact they're getting a good offer is in fact what's slowing down what might be a good solution.
Wachter expects fraud will keep rising this year and next.
I'm Stacey Vanek Smith for Marketplace.