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Daily Real Estate News  |  September 28, 2006  |   Mortgage Fraud on the Rise
Mortgage fraud, involving loans obtained by providing false information, has mushroomed in recent years as lenders have pushed for speedier loan approvals in an effort to remain competitive and earn maximum profits from the housing boom.

The Federal Bureau of Investigation reports mortgage fraud led to losses of $1 billion in 2005, up from $429 million a year earlier. Some of the fraud that slipped through during the boom is only now starting to surface.

In Martinsville, Va., a group of truck drivers, factory workers, a pastor, and a hair stylist are among those who say they were duped by a scheme to buy houses in Indiana a place many of them have never even visited.

Countrywide Financial Corp., the nation’s largest home lender, and Argent Mortgage Co., another big lender, are suing in federal court, saying they were left holding the bag.

In its lawsuit, Countrywide puts most of the blame on Robert Penn, a former Martinsville resident, who it accuses of organizing the fraud acquiring houses and then quickly reselling them for much higher prices to the Martinsville borrowers. That allowed Penn and associates to profit from the quick sale while leaving the people in Martinsville stuck with loans they couldn’t pay, the suit says.

One church secretary, who says she heard about the investment group from her pastor, says she and her husband, a building-maintenance worker, recently learned that they were the owners of 14 homes.

Countrywide doesn’t specify damages in the suit. It also doesn’t say why the lender didn’t raise questions early in the process about why so many people in a struggling area of southern Virginia would be investing in houses in Indiana. The suit does, however, suggest that a closer review of some of the home-purchase documents might have prompted questions; one such document failed to identify the seller.

Source: The Wall Street Journal, James R. Hagerty and Michael Hudson (09/28/06)

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