Mortgage Bankers Association • Mortgage Fraud
Increasing Funding for Appraiser Monitoring and Enforcement. Section 7 of the bill would provide grants to state agencies with authority over appraisers to improve the monitoring and enforcement of appraisers. States with higher incidents of mortgage fraud, as determined by the FBI’s and industry’s statistics, would receive priority in the allocation of these funds. Because many mortgage fraud schemes include an appraisal component, such increased monitoring and enforcement would be very helpful in preventing mortgage fraud.
Additional Funding to Law Enforcement. Sections 8 and 9 of the bill would increase the funding to federal, state and local law enforcement agencies. The bill would authorize grants to state and local law enforcement agencies to establish and/or improve mortgage fraud task forces and to improve the communication of such task forces with other federal, state and local law enforcement agencies. The bill also would provide additional funding to the Department of Justice to increase mortgage fraud investigation efforts. These infusions of funds into law enforcement agencies will be very beneficial in aiding the agencies’ efforts in investigating and preventing mortgage fraud.
MBA believes the principles underlying the provisions discussed above are the appropriate principles for any new federal mortgage fraud legislation and that legislation based on these principles can add value to the current body of law addressing mortgage fraud.
Any new federal legislation should target mortgage fraud, not so-called predatory lending.
While the provisions of S. 1222 discussed above can be expected to enhance federal efforts to prevent mortgage fraud, the bill also has some problematic provisions. In addition to the potential loopholes discussed earlier, the bill inappropriately conflates mortgage fraud with predatory lending. Indeed, several of the provisions have little, if anything, to do with mortgage
fraud as that term is understood by law enforcement officials and the mortgage industry. For example, S. 1222 would:
Impose heightened foreclosure requirements on subprime loans containing a variety of terms;
Create assignee liability in vague and undefined cases of “deceptive practices” — a term that, in context, appears to mean something different than “fraud”; and
Require the provision of housing counseling services to borrowers regarding “any other activities or practices that… are likely to increase the risk of foreclosure by such individuals” without providing any guidance as to what such “other activities or practices” may be.54
Whether one believes such provisions have merit as a matter of public policy, they are not directly related to mortgage fraud. Instead, these provisions clearly are intended to address concerns related to “predatory” lending.
Mortgage fraud and predatory lending differ in many important respects in terms of the actions, methods and targets involved. As discussed above, mortgage fraud, as the term is understood by federal law enforcement officials and the mortgage industry, is the intentional enticement of a financial entity to make, buy or insure a mortgage loan when it would not otherwise have done so, had it possessed correct information. In contrast, predatory lending is an undefined term that generally describes negative practices that are harmful to consumers. Clear definitional boundaries around the term predatory lending have yet to be drawn. Because the actions and targets of mortgage fraud and predatory lending differ, actions taken to remedy one rarely, if ever, will remedy the other. Conflating the two creates the danger that solutions appropriate only to one will be applied to both. While there are actions federal law makers can take to address each, the numerous and essential differences between them make their conflation, as well as their simultaneous treatment, inappropriate.
S. 1222, §§ 6, 10.
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