Lying buyers broke law but most won't do time

Homebuyers who lied about their incomes on loans broke the law, but likely won’t get a knock on their door from the FBI.

Defrauding a lender by lying on a loan application is a federal crime carrying a potential $1 million fine or 30 years in prison.

But the FBI places a low priority on pursuing borrowers who inflated their incomes to buy a home, said Joseph Schadler, FBI spokesman in San Francisco. Investigators are focusing on real estate fraud by organized rings that illegally flipped properties, staged bogus foreclosure rescue operations and carried out other schemes, he said.

“We’re going to pick the ones that are the most egregious and have the greatest impact on the economy,” Schadler said.

“Fraud for property is less impactful on the economy than the speculative fraud where people are trying to flip homes for profit. Especially in California, there’s such an enormous amount of speculative activity in real estate. There’s plenty going on there before we go after people who tried to get into a house they couldn’t afford,” he said.

Mortgage fraud investigations by federal and state authorities are on the rise as the fallout from housing’s downturn reveals a growing number of bad loans tied to real estate deals made during the boom years.

“When there’s money to be had, people commit fraud, and there was a lot of money to be had,” Schadler said. “A lot of it is continuing to come to light.” Federally insured banks and credit unions are required to make suspicious activity reports.

The FBI reported a 56 percent increase in reports of mortgage fraud in the Monterey to Eureka region from 2005 to 2006. Nationally, mortgage fraud reports rose nearly sevenfold between 2002 and 2006, with the pace continuing to pick up in 2007.

There are about 1,200 active mortgage fraud investigations nationally, up about 40 percent from last year. The FBI can’t disclose any active Sonoma County investigations, Schadler said.

State regulators also are fielding a growing number of mortgage fraud complaints and have launched a handful of investigations.

“Those type of cases are clearly on the rise. We’re uncovering a lot of fraud where brokers were involved in systematic fraud,” said Tom Pool, spokesman for the California Department of Real Estate.

The agency licenses about 33,000 mortgage brokers among the more than 540,000 real estate agents and brokers with active California licenses.

Enforcement is primarily driven by complaints and the agency also conducts random audits of brokers. The agency added 40 auditors, investigators and legal staff a year ago anticipating a rise in complaints.