MODESTO -- Lenders are being warned there's a higher risk of mortgage fraud in Stanislaus County than anywhere else in the United States, and it's almost as bad in Merced and San Joaquin counties.
The risk of borrowers ripping off lenders is twice as high in the Northern San Joaquin Valley compared with the national average, according to mortgage application data analyzed by Interthinx.
"When you talk about mortgage fraud, you're talking about bank robbery without a gun," said Ann Fulmer, Interthinx vice president of industry relations. "It robs a community of its value and security." Interthinx analyzes mortgage applications for more than 1,100 lenders, running data through its computers to spot potential fraud.
Apparently, fraud is rampant in Stanislaus, where foreclosures are high and median home prices have fallen about 66 percent since 2005.
"Fraud flourishes in unstable markets," Fulmer warned. She said there was lots of mortgage fraud when the region's home prices soared several years ago, and now new scams are being used to push down prices. "Fraudsters are really adept entrepreneurs,"she said.
Computer analysis is getting more sophisticated, too, enabling Interthinx to spot suspicious trends.
"We are seeing a resurgence of schemes involving real estate agents," Fulmer said.
Interthinx has started publishing the Mortgage Fraud Risk Report for lenders, and the latest issue puts Stanislaus atop the list.
"It gives lenders an idea where they really need to pay attention," Fulmer said, "which allows them to take defensive action." Stanislaus' real estate insiders are well aware of this type of fraud.
Mortgage fraud comes in many flavors. Basically, mortgage fraud is any material misstatement, misrepresentation or omission used to obtain a real estate loan. Lenders are the victims.
That's different from predatory lending, in which borrowers are victimized by lenders or mortgage brokers who put them into overpriced loans.
The hottest form of mortgage fraud in the Northern San Joaquin Valley involves bogus property valuations.
Fulmer said a lot of the fraud involves the resale of foreclosed bank-owned homes and "short sales," in which homes facing foreclosure are sold for less than their outstanding mortgage.
Here's one way that scheme works, according to Fulmer: A bank repossesses a home, then hires a real estate agent to resell the property. That agent secretly creates a limited liability corporation that offers to buy the property for a very low price.
Meanwhile, other interested buyers also submit bids for the home, offering considerably more than the LLC's bid.
But the dishonest agent tells the seller (which in this case is the bank) only about the low bid from the LLC. It illegally keeps the other bids secret.
Figuring that the LLC's bid is the best deal available, the bank agrees to sell for the low price just to get the foreclosed home off its books.
Then the agent immediately resells the house on behalf of the LLC to one of the other bidders for the house.