Bulletin: IL2011003

Dear Associates:

On June 14, 2011, Michael J. Rooney, Supervisor of the Title Insurance Section of the Illinois Department of Financial and Professional Regulation distributed an e-mail requesting the Underwriters to pass along information received at a meeting of the Mortgage Fraud Working Group which discussed information contained in the Quarterly Fraud Risk Report of Interthinx. Below are some excerpts from the e-mail:

"First, the report identifies an increase in so-called 'fraud for property' as friends and family take on debt in order to help those with lower incomes and/or impaired credit histories obtain housing following a foreclosure.  Second, the report debunks the notion that 'fraud for profit' is somehow worse than 'fraud for property'."

"A closer analysis reveals that the same mortgage brokers, real estate agents and other professionals (emphasis added) are often involved in multiple fraudulent transactions involving 'creative financing' and/or misrepresentation of borrower qualifications.  These professionals encourage borrowers to lie, or lie on their behalf, so that the loans will close and the professionals will make their commissions and fees.  Seen from that perspective the distinction between fraud 'for profit' and 'for property' is specious.  When viewed in the aggregate and in hindsight, it is clear that frauds 'for property' posed a significant threat to the economy and that going forward, they must be identified and addressed with the same urgency as frauds 'for profit'."

"Third, the report identifies the following Chicago-area zip codes as falling in the top twenty zip codes in the nation for fraud potential:

60621              ranks number 3 out of 20
60636              ranks number 5 out of 20
60624              ranks number 6 out of 20
60623              ranks number 19 out of 20"

"These rankings were developed based upon current loan applications coupled with incidence of foreclosures and the potential for 'flopping' (which is a flip involving an artificially low price on a short-sale followed by a sale at a current market price).  In other words, these rankings are based upon leading indicators, not trailing indicators (arrests and indictments, largely confined to 'fraud for profit' schemes).  Chicago has 50% of the top six riskiest zip codes in the country."

His purpose in sending this is to provide notice that regulators have learned from the last go-round and are better prepared to confront and catch fraudsters and help those in the title insurance industry understand the risks they face daily in the marketplace.  "Those who are found to have assisted in perpetrating mortgage fraud schemes, whether through intent or incompetence, will face the consequences.  See, 215 ILCS 155/21(a)(3)."

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