Mortgage FraudIn a 2 page paper, examine the relationship between the issues surrounding mortgage fraud and “broken windows theory”.Please note: APA formatting and citations rules apply
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Chapter Eight
CRIMES IN THE HOUSING
SYSTEM
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Introduction
College students can fall victim to white-collar crime
due to the poor conditions landlords keep apartments
in
Slumlords
In general, crimes in the housing system fall into one
of two categories:
Mortgage fraud
Renting unsafe properties (slumlords)
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Mortgage Fraud
Mortgage fraud: “intentional misrepresentation to a
lender for the purpose of obtaining a loan that would
otherwise not be authorized”
Mortgage fraud has been steadily increasing
Not all mortgage fraud is classified as white-collar
crime (i.e. consumers scamming banks for gain)
Types of mortgage fraud
Fraud-for-housing – when offenders commit fraud in order to
secure a loan to buy a house
Fraud-for-profit – occurs when offenders commit fraud in order
for financial gain
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Straw buyer fraud- when individuals purchase a home
they do not plan on living in and then deed the home
over to another person
Short sale fraud- when parties involved in a short sale
manipulate the process in order to convince the bank to
allow the short sale to occur
Appraisal fraud- when appraisers lie about a home’s
value
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Equity skimming/equity fraud- when investors
convince homeowners to use the equity in their home to
hire the investor to buy the home
Fraud has occurred when the investor defaults on the mortgage
Reverse mortgage fraud- fraudulent activities that
occur when homeowners over the age of 62 sell their
home back to the bank, but are allowed to continue to
live in it until they pass away
Fraudulent activities include: charging for free information,
misrepresenting re-loan counseling, forgery, posing as
government officials, and bundling unnecessary services
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Fraud during closing/settlement- fraudulent activities
that occur at the conclusion of a real estate business
deal
Fraudulent activities: kickbacks, failure to reveal settlement costs,
overstating settlement costs and pocketing the difference, and
increasing fees above promised amount
Foreclosure rescue scams- illegal activities designed to
use future foreclosures as a component of offense
Illegal activities include: arson, unknown bankruptcy filings,
advanced fee frauds, and stimulus fraud
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Builder initiated fraud- occurs when builders engage in
behaviors that are intended to defraud the lender or
buyer
Pump-and-pay schemes: fraudulently increasing a property’s
value and then collecting money from the equity
Builder bailout schemes: builders offer excessive incentives to
buyers, but conceal these offers from the lender to create the
appearance that the property is worth more than it actually is
Faulty credit enhancements: when builders make it appear that
the buyer has better credit than they actually do
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Flipping- when offenders buy and resell properties at
inflated prices
Qualifications fraud- when professionals lie about a
buyers qualifications in order to obtain a loan to buy a
home
Professionals often misrepresent a client’s income, employment,
and/or occupancy intentions
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Mortgage Fraud
Real estate agent/investor fraud- fraudulent activities
committed by real estate agents or investors
Home improvement scams: where real estate agents or investors
hide issues with a home
Fraudulent loan origination: occurs when professionals help
buyers falsely qualify for a loan
Chunking: situations where investors buy multiple properties
without informing the bank about the other properties
Liar loans: when investors lie about loans they currently have or
are attempting to obtain
Churning: excessive selling of the same property in an effort to
gain from the fees and commissions associated with the repeated
sale of the property
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Consequences of Mortgage Fraud
Individual victims- financial ruin and emotional stress
Businesses as victims- financial ruin, business failure,
morale problems, and loss of jobs
Communities as victims- vandalism of abandoned
properties, increased disorganization in community
accompanied by increase in conventional crime rates,
and raised property taxes
Real estate market as a victim- increased rates/fees
and difficulties determining home values
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Patterns Surrounding Mortgage Fraud
Offenses involve huge dollar losses
Mortgage fraud cases often occur over long periods
of time
Mortgage fraud is distributed differently across the
country
Top areas for concern are Miami, Los Angeles, and New
York City
Very few criminological studies have focused on
mortgage fraud
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Patterns Surrounding Mortgage Fraud
Warning Signs of mortgage fraud:
Inflated
appraisals
Increased commissions
Exclusive use of one appraiser
Requests to sign blank forms
Higher than normal fees
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Patterns Surrounding Mortgage Fraud
Prevention Strategies:
Mandatory reporting requirements
Better communication between the mortgage industry and
law enforcement
A database of censored or debarred mortgage officials
Increased funding for preventing offenses
Assigning law enforcement responsibility to one specific
Department of Justice Office
Enhancing intergovernmental collaborations
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Employee Role in Mortgage Fraud
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Slumlords as White-Collar Criminals
A slumlord is a landlord who profits from renting run
down properties that they do not properly maintain
The Uniform Residential Landlord and Tenant Act
requires that homes must be inhabitable, up to code,
safe, and capable of providing necessary utilities
Officials must decide whether or not to force tenants
out of homes and possibly become homeless or do
nothing and allow slumlord activities to continue
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Slumlords as White-Collar Criminals
Consequences of slumlord behavior include:
Health consequences
Financial consequences
Dehumanization
Emotional consequences
Decreased property values, social disorganization
Crime,
Legislative consequences
Grassroots effects
When slumlords fail to maintain their property it sends the message
that no one cares about the property
Some judges have sentenced slumlords to live in the properties they
owned
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Section Nine
CRIMES BY THE
CORPORATE SYSTEM
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Conceptualizing Corporate Crime
A corporation can be identified as a business, a physical
location, a legally recognized status, or a collection of
employees
Corporations are characterized by a hierarchical
structure
Differences from other forms of white-collar crime:
Offenses are committed either for or by the organization
The majority of corporate crimes are committed in groups
Consequences of corporate crimes are more severe
Misdeeds of corporations are rarely defined as criminally illegal
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Corporate Crime
Antitrust offenses- include offenses that restrict
competition
It is difficult to determine whether an antitrust offense
has been committed or if corporate system behaviors
are simply changing with the economic system
U.S. antitrust laws focus on:
Price distribution
Mergers
Joint ventures
Intellectual property use
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Antitrust Offenses
Price fixing- instances where competitors agree on a
price at which goods or services should be sold
Horizontal price fixing: occurs when competitors agree to
set prices at certain price
Vertical price fixing: occurs when parties from different
levels of production and distribution set prices at a
certain level
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Antitrust Offenses
Bid rigging- also known as collusion; situations
where competitors plan to set specific bids for
goods or services they would supply in response to
a request for bids
Four types of bid rigging:
Bid suppression: when competitors agree not to submit bids
Complementary bidding: artificially high bids are submitted
Bid rotation: competitors take turns submitting the lowest
bids
Subcontracting: when competitors hire each other after
winning a bid
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Types of Antitrust Offenses
Price discrimination- when different prices are charged
to restrict competition between competitors
Price gouging- when business conspire to set artificially
high prices
Market allocation- when competitors agree to divide
markets according to territories, products, goods, or
services
Group boycotts- when competitors agree to not do
business with specific customers or clients
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Dynamics of Antitrust Offenses
Agreements can be written, verbal, or inferred
Serious consequences and can result in increased
costs to consumers and taxpayers
Globalization has led to offenses being taken more
seriously on a criminal level
Officials have difficulties determining if an offense
has occurred
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
False Advertising
False advertising- instances where business make
inaccurate statements concerning their products or
services in order to promote their sales
Bait and switch
Resale fraud
Misuse of the phrase “on sale”
Misrepresentation of product capabilities
Advertisements that make claims about health or
safety and claims that customers cannot reasonably
evaluate on their own are given more attention by the
authorities
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Deceptive Sales
• Deceptive sales are illicit sales tactics that are
driven by corporate policies and directives
• Examples of deceptive sales:
o Recommending unnecessary services
o Lying about accreditation
• Research suggests that paying workers an
hourly wage instead of commission is a good
way to prevent deceptive sales
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Unfair Labor Practices
Exploitation- occurs when businesses take advantage
of their employees
Examples of exploitation include sweatshops, jobs that are
harmful to fetuses, and asking workers to stay late without pay
Discrimination- unfair treatment based on race,
ethnicity, sex, religion, and disabilities
Negative consequences for health, self esteem, and job
performance
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Unfair Labor Practices
Unsafe work environments- include work
environments that can result in death, illness, or
injuries
Costs- settlements, negative publicity, increased insurance
premiums, higher compensation rates, and increased government
attention
Occupational Safety and Health Act was created to ensure the
safety of workers by providing training, safety testing, and
reviewing past work injuries and illnesses
Workplace injuries and illnesses are rarely treated as a criminal
offenses
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Number of Illness and Injuries with Days
Away from Work
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Harmful Consumer Products
Harmful consumer products are goods that enter the
market and create significant harm to consumers
Harmful toys- the number of toy-related injuries has increased
Certain automobiles- vehicle design flaws can result in deaths
and recalls
Types of food- tainted food can result in death and
hospitalization
Construction material- exposure to certain materials can cause
significant harm
Recalled goods from China- goods from China often have unsafe
levels of lead, but it is harder to hold foreign companies
accountable
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Harmful Treatment of Consumers
Harmful treatment of consumers refers to instances
where companies intentionally or unintentionally place
their consumers at risk of harm
Businesses are obligated to ensure that their
customers/consumers are as safe as possible
Examples:
Nursing home neglect
Failure to provide adequate security
Nightclub fire resulted in 100 deaths because of no exit signs
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Dynamics of Corporate Offending
Benefits of corporate crime- benefits outweigh the
costs for most corporations
Complexity of intent- different levels of knowledge
involved in corporate violence
Fully conscious and conspiratorial behavior
Incompetence and neglect
Legitimate behavior, unaware of criminal risks
Breadth of victimization- one offense could harm
millions of people
Problems responding to corporate crime- corporations
have tremendous power to influence criminal justice
system
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
Public Concern About Crimes in the
Corporate System
Corporate crimes are not subject to a high level of
public scrutiny compared to conventional crime
Members of public typically do not know they have
been victimized
Media coverage has led to a lack of public
understanding
Few criminologists focus on corporate offending
Brian K. Payne, White-Collar Crime: A Text/Reader © 2012 SAGE Publications
WHITE COLLAR CRIME
White-Collar Crime: Chapters 9 and 10
Crimes in the Housing System
This lecture covers the following topics:
•
Mortgage Fraud
•
Types of Mortgage Fraud
•
Consequences of Mortgage Fraud
•
Patterns Surrounding Mortgage Fraud
•
Slumlords as White-collar Criminals
Mortgage Fraud
•
“Intentional misrepresentation to a lender for the purpose of obtaining a loan that would
otherwise not be advanced by the lender” (p.172)
•
One of the fastest growing WCC’s
•
Increase due to the shrinking real estate market
•
Not all cases of mortgage fraud are WCC
Types of Mortgage Fraud
•
Difference between “mortgage fraud for-profit” and “mortgage fraud for housing” (p.174)
•
straw buyer fraud
•
short sale fraud
•
appraisal fraud
•
equity skimming
•
reverse mortgage fraud
•
fraud during closing and settlement
•
foreclosure rescue scams
•
builder-initiated fraud
•
flipping
•
qualifications fraud
•
Real estate agent/ investor fraud
Consequences of Mortgage Fraud
•
individual victims of mortgage fraud
•
business victims of mortgage fraud
•
communities and neighborhoods where the frauds occur
•
The real estate market
Patterns Surrounding Mortgage Fraud
•
•
Three patterns
o
Offenses involve large dollar losses
o
Occurs over a long period of time
o
Distributed differently across the country
Mortgage fraud warning signs (p.184)
o
Inflated appraisals
o
Increased commissions for brokers and appraisers
o
Exclusive use of one appraiser
o
Requests to sign blank forms
o
Higher than customary fees ( FBI, 2009c)
Slumlords as White-Collar Criminals
•
Failure of the landlord to provide adequate housing
•
Officials must weigh the forcing the impoverished to move and possibility homeless or do
nothing and allow the bad behavior to continue.
•
Consequences of Slumlord behavior includes:
o
Health consequences
o
Financial consequences
o
Dehumanization
o
Emotional consequences
o
Decreased property values
o
Social disorganization
o
Crimeo Legislative consequences
o
Grassroots efforts
•
How is this related to Maslow’s Hierarchy of Needs?
Chapter Eight Summary
•
In this chapter, attention was given to crimes committed in the housing system.
•
The most commonly committed crimes in the housing system include mortgage fraud and
renting unsafe properties (e. g., being a slumlord).
•
Mortgage fraud involves cases of “intentional misrepresentation to a lender for the purpose of
obtaining a loan that would otherwise not be advanced by the lender” (FinCEN, 2009).
•
It is important to stress that not all cases of mortgage fraud are necessarily white-collar crimes
commit-ted by employers.
•
At the most general level, experts distinguish between mortgage fraud-for-profit and mortgage
fraud-for-housing.
•
In terms of types of for-profit fraud, the following types of mortgage fraud were discussed:
•
o
straw buyer fraud
o
short sale fraud
o
appraisal fraud
o
equity skimming
o
reverse mortgage fraud
o
fraud during closing and settlement
o
foreclosure rescue scams
o
builder initiated fraud
o
flipping
o
qualifications fraud
o
real estate agent/ investor fraud
Curry (2007) identified two types of straw buyers:
o
the conspirator straw buyers who are in on the scheme
o
victim straw buyers who are not in on the scheme but who believe they will either
legitimately own the home or be able to rent it
•
The phrase short sale refers to instances where lending institutions allow homes to be sold for
amounts that are lower than what the homeowner owed on the home’s mortgage.
•
Appraisal fraud occurs when appraisers misrepresent the actual value of a home.
•
One variety of equity fraud occurs when offenders steal the equity of a home by forging a
homeowner’s signature on equity loan forms and then direct the funds from the equity loan to
the offender’s bank account.
•
Reverse mortgage fraud refers to situations where fraudulent activities occur as part of the
reverse mort-gage transaction.
•
Foreclosure rescue scams include various illicit activities designed to use impending foreclosures
or a homeowner’s financial distress as an element of the offense.
•
Builder-initiated mortgage frauds occur when builders or developers engage in behaviors that
are designed to defraud the lender or the buyer including
o
pump-and-pay schemes
o
builder bailout schemes
o
faulty credit enhancements
•
Flipping occurs when scammers buy and resell properties with inflated prices. Sometimes, the
same home will be sold over and over at escalating prices as part of these schemes.
•
Qualifications fraud refers to situations where professionals lie about a buyer’s qualifications in
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