Obama for recognizing that a key to combating mortgage fraud is increasing funding to law enforcement and creating mechanisms for law enforcement cooperation.
In particular, the following concepts contained in S. 1222 likely will be beneficial in enhancing the ability of law enforcement officials to combat mortgage fraud:
Mandatory Reporting Requirements. Section 3 of the bill would expand the obligation to report regarding certain transactions to many other types of entities involved in residential mortgage transactions, including government sponsored enterprises (GSEs), appraisers, mortgage brokers, real estate brokers, title companies and others. While the specific requirements of this bill raise concerns beyond the scope of this discussion, the concept of increasing the information available to law enforcement officials generally is a good one.
Communication Between Industry and Law Enforcement. Section 4 of the bill would require the Secretary of the Treasury to establish a system whereby the mortgage industry can receive updates from federal law enforcement regarding suspicious activity trends and mortgage fraud-related convictions. Such communications would be very beneficial in assisting the mortgage industry in policing itself and preventing mortgage fraud before it occurs.
Database of Debarred or Censured Mortgage Professionals. Section 5 of the bill would require the creation of a database containing the status of mortgage professionals regulated by any federal or state agency. The provision would allow the database to be accessed by authorized institutions, as well as consumers. In general, providing such information would be helpful in assisting the mortgage industry prevent mortgage fraud before it occurs, as well as in assisting consumers avoid unethical mortgage professionals.
To the extent a mortgage-specific addition to federal law is determined to be in order, a better course than enacting a new law would be to expand the applicability of an existing law. MBA suggests one or more of the following would be appropriate:
18 U.S.C. §§ 1014 and 1344 currently apply to fraud affecting Section 20 financial institutions, but not fraud affecting state-licensed mortgage lenders. If these provisions were expanded to cover transactions involving any “federally related” mortgage loan53 (as that term is defined in RESPA and Regulation X), it would apply to all mortgage transactions.
The mail and wire fraud statutes currently apply to all mortgage fraud, but apply increased fines and imprisonment only when a Section 20 financial institution is involved. If these provisions were expanded to cover transactions involving any “federally related” mortgage loan (as that term is defined in RESPA and Regulation X), the increased penalties would apply to all mortgage transactions.
By expanding an existing statute to apply to loans defined using the well-established and defined term “federally related” mortgage loan, these suggestions would have the effect of expanding the tools available to federal prosecutors, and would recognize the economic reality that with the rise of the secondary mortgage market, the number of loans originated through mortgage lenders that are not insured depositories has increased greatly.
Some provisions of S. 1222 could be effective in preventing mortgage fraud.
Several of the provisions of Senator Barack Obama’s (D-IL) “Stopping Mortgage Transactions which Operate to Promote Fraud, Risk, Abuse, and Underdevelopment Act,” or the “STOP FRAUD Act” (S. 1222), show that federal law can play an important role in making law enforcement more effective in combating mortgage fraud. The MBA commends Senator
Mortgage Bankers Association
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See Real Estate Settlement Procedures Act (P.L. 93-533) and Regulation X.