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Watching And Waiting: Our panel of experts at the SourceMedia Fraud & Risk Conference in Las Vegas are keeping an eye out for the likely increase in illicit behavior.

Article Excerpt
MARK: The FBI has started another mortgage fraud task force in the D.C. area. It reported 1,200 open investigations over the course of the year. I was wondering what you thought that over the past 12 months whether mortgage fraud has become more or less of a problem?

ANN: I think it is becoming more obvious, because clearly the market deterioration has created conditions where a lot of the fraud, which had been masked by rising property values, is no longer being masked. What you are seeing now is part of the life cycle, because fraud, like anything else, has a life cycle. Fraudsters have learned to escrow money and sometimes they can keep it going for year before they let it go into default because they are trying to escape detection through (early payment defaults) or (first payment defaults). I think it was you (points to Merle) who said at one time, in a down market the dead bodies right to the surface of the pond.

MARK: A pungent observation, but that brings up a point. With the market deteriorating without fraud, is there pressure to commit fraud to mask that?

MERLE: It is more likely we are going to see more attempts out of desperation to do things to try and deal with this declining market. I talked to a chief risk manager at one of the top two banks in America who told me the latest report they received in the 40 top markets in America there was going to be property depreciation in the next two years. Whether that happens or not, nobody knows, but it doesn't bode well for fraud. I do think there is more of it and I think you are going to continue to see more of it and part of it is because it is more obvious. I think we are going to see a lot of things when they are reexamined that were certainly misrepresentations, if not fraud. The fraud-for-profit schemes are fairly obvious, but fraud for housing is going to become a much bigger part of the picture than we all anticipated.

BRAD: In the past, lenders had treated fraud for housing as a cost of doing business. Is that going...

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