Wednesday, July 28, 2010

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 5

RATIONALIZATION

Of course, in the broker’s mind, he is not seeing himself as a criminal. He feels like he was simply allowing a borrower to realize the American dream of homeownership. Yes, the broker financially benefited from the transaction; however, he feels he is entitled to the compensation for his technical skill in closing the loan.

After fraud has been committed on a frequent basis, it becomes easier. The individual is no longer bothered by their ethics or morals. It just becomes a continuous activity and feels normal. In fact, it may become enjoyable for them to find new ways to close loans and defraud their employers. They may even rationalize things by believing that if they weren’t the ones to do it then it would simply have been done by another broker. It then becomes an expectation to them.

CONCLUSION

Mortgage fraud can be viewed in a triangular pattern. Through pressure, the broker feels like there is the opportunity to commit fraud because it is a necessary action. Due to the frequency of the commission of fraud, a greater number of avenues must be explored to put an end to this terrible plague.




Gary Opper, CPA is the Managing Member of Levie-Opper, LLC, Weston, Florida. He is a member of the American Institute of CPAs and the Florida Institute of CPAs. He has written over 500 published articles in over 20 magazines. Mr. Opper has been the National Association of Mortgage Broker’s “Writer of the Year” and “Featured Writer of the Year.” He has spoken to many groups including the Florida Bar Association, the Florida Institute of CPAs, the Mortgage Bankers Association and Northern Trust Bank. He has lectured at four colleges including University of Florida and Florida International University. Opper has an Accounting degree from UF and a Master of Science in Taxation from FIU. Opper is Past President of the Florida Association of Mortgage Professionals - Miami Chapter and the FICPA - Gold Coast Chapter. Levie-Opper, LLC focuses on forensic accounting and fraud auditing. They handle state and federal cases including civil, commercial and criminal. Mr. Opper is available to speak to your group. He may be reached at (954) 384-4557, fax: (954) 384-5483, or e mail: Gary@Levie-Opper.com.

© Gary Opper. All Rights Reserved.

Monday, July 26, 2010

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 4

OPPORTUNITY

The opportunity to commit and conceal fraud exists when employees are given access to assets and information. These individuals are given access to firm records and valuables that are ordinary aspects of their jobs. Unfortunately, it is this access that permits them the ability to commit fraud. To these “unprofessionals,” committing fraud is available and easy.

These individuals feel that they are unlikely to be caught. Therefore, they think of all the opportunities that will arise for them to handle money at their business. Many lenders easily provide the many ramps needed for brokers and others to commit fraud due to little monitoring and sloppy business practices. These individuals are also provided the knowledge needed to commit fraud through seminars and various educational programs. This readily gives them technical skills that can be utilized to commit fraud.

Thursday, July 22, 2010

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 3

PRESSURE

There are many pressures in today’s society thanks to the recession that is currently taking place in our economy. Many people are suffering financially with such issues as debts or high medical bills. There is also a perceived financial need when you are surrounded by numerous individuals rich in material goods. In the mortgage industry, there is pressure put on brokers from the system. Managers will place tremendous pressure for production on their brokers to close. Therefore, there is additional pressure to compete, keep up with fellow brokers and earn. Unfortunately, these were great enough incentives for fraud to establish itself and grow.

Brokers have that pressure to close put on them by their supervisors, but they also feel it coming from their borrowers. They are looking to quickly close a file to benefit their borrowers. So, some individuals cave and commit fraud in order to get their clients into a home as fast as possible. Other brokers might also commit fraud in order to get their clients a lower rate in a refinance.

Monday, July 19, 2010

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 2

CRESSEY’S THEORY

In 1953, Donald R. Cressey theorized that there were two components needed to commit a crime: general information and technical skill. According to Cressey, general information is the knowledge that fraud could be committed. In a mortgage fraud circumstance, the information could be derived from hearing that other mortgage brokers (either in the same mortgage entity or another mortgage entity) are committing fraud. It could also come from observing fraudulent behavior or even supervisors, managers and employers. Even the newspapers provide information on fraudulent behavior by mortgage brokers.

With technical skill, it is the abilities needed in order to commit fraud. Dishonest mortgage brokers have many cohorts. These individuals can include colleagues, mangers and lender’s account representatives. They are then abusing the trust that is placed in them.

In Cressey’s theory, the three components of fraud then form a triangle made up of opportunity, means and motive. Here, the points of the fraud triangle consist of a perceived financial need (pressure), perceived opportunity and rationalization. It was his belief that these three issues are present to some extent in all white collar criminal cases.

Wednesday, July 14, 2010

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 1

Fraud has become a rampant occurrence in the mortgage industry. It has become such a common practice that many people are getting away with it. There are numerous reasons why an individual would commit this illegal act. By utilizing the mortgage fraud triangle, we can explore the pressure, opportunity and rationalization.

COMITTING FRAUD

Unfortunately, many mortgage companies create a corporate culture that allows for corruption to occur. Techniques to commit fraud were taught to their new employees as part of instructing them in mortgage processing. Lenders have also created programs on how to detect fraud, which were then used by dishonest brokers as ways to actually conduct it. Through the combination of financial pressures, employer pressures and a lack of ethics there was too great a temptation created and brokers have begun to take the risk and commit fraud.

Monday, July 12, 2010

PONZI SCHEMES: AN OVERVIEW - Part 3

BIG BUCKS

Ponzi schemes can generate billions of dollars. In fact, in 2008, Bernard L. Madoff of Investment Securities LLC committed arguably the largest Ponzi scheme in history. His scheme had all the typical Ponzi ingredients with a great deal of creditability due to the fact he had been in the investment banking business since 1960. Due to Madoff’s scheme, investors are estimated to have lost anywhere from $34 and $50 billion U.S. dollars. His scheme did collapse though, as they always do.

CONCLUSION

With the economy in turmoil, more and more Ponzi schemes are being established. By having a greater knowledge of their inner workings, there will be less of a chance to fall into their traps. Keep your eyes open so you don’t stumble into a Ponzi pitfall.

Gary Opper, CPA is the Managing Member of Levie-Opper, LLC, Weston, Florida. He is a member of the American Institute of CPAs and the Florida Institute of CPAs. He has written over 500 published articles in over 20 magazines. Mr. Opper has been the National Association of Mortgage Broker’s “Writer of the Year” and “Featured Writer of the Year.” He has spoken to many groups including the Florida Bar Association, the Florida Institute of CPAs, the Mortgage Bankers Association and Northern Trust Bank. He has lectured at four colleges including University of Florida and Florida International University. Opper has an Accounting degree from UF and a Master of Science in Taxation from FIU. Opper is Past President of the Florida Association of Mortgage Professionals - Miami Chapter and the FICPA - Gold Coast Chapter. Levie-Opper, LLC focuses on forensic accounting and fraud auditing. They handle state and federal cases including civil, commercial and criminal. Mr. Opper is available to speak to your group. He may be reached at (954) 384-4557, fax: (954) 384-5483, or e mail: Gary@Levie-Opper.com.

Tuesday, July 6, 2010

PONZI SCHEMES: AN OVERVIEW - Part 2

THE ELEMENTS

There are five key elements to a Ponzi scheme: 1) benefits, 2) the understanding, 3) initial trustworthiness, 4) investors receive initial return and 5) communication of success. At the beginning, a promise will be made to the investors that their participation will receive a greater rate of return. The scammer will often indicate the rate of return, which will be a significant enough amount to make it worth an investment. It can’t be too high though or the investor will get suspicious.

The set up for the scam will need to possess a plausible explanation to investors as to how their investing will achieve the promised greater rate. A typical Ponzi schemer will utilize an explanation that claims they have a special skill or additional inside information that will be to the investors’ benefit. Another possible explanation offered by a Ponzi perpetrator is that they possess a business opportunity that is not available to the public. That way, the investor feels they are getting preferential treatment.

The fraudster must be believable to the investor in order to establish a connection with them that encourages participation in their scam. The investment must also payoff to the investors at the promised rate of return, if not better.

Finally, the scammer will inform the investors of their potential payoffs. They will try and convince them of the budding opportunity for exponential growth. In order to convince the investors, at the very least, they will need to hear that more money will be coming in than is being paid back to them.

HOW IT WORKS

Once the arm has been twisted and an investment made, the Ponzi schemer sets to work on creating the fa├žade. When the specified return time period is reached, they will receive their funds plus the expressed interest rate or return. Next, the scammer will point out to the investors various historical successes of the scheme so they will convince them to place further money into the system. It is common that the initial investors will return to the scam since they have already received such great benefits.

With all their ducks in a row, the fraudster continues to promote his scheme a number of times. They will; however, break the pattern during the second step of the cycle. Rather than repaying the investment money and their promised rate of return, the Ponzi schemer will run off with the money and begin a brand new life.