From Homescape

On my way to work on Tuesday, stuck in heavy traffic along Lake Shore Drive, I was passing the time listening to National Public Radio’s Morning Edition. A report on the growing number of mortgage fraud cases in Las Vegas, Nev., quickly caught my attention. NPR reported that the FBI has launched a new investigation in Las Vegas that has uncovered several mortgage scams involving 14 financial institutions. Sin City, known for its decadence, is now emerging as the mortgage fraud capital of America.

With mounting foreclosures across the country, law enforcement agencies have been cracking down on mortgage fraud. While the schemes vary, among the more common ones used in Vegas included investors paying fake buyers $5,000 to $10,000 to put their names on mortgage applications to purchase multiple homes in the same neighborhood. Once these loans closed, corrupt appraisers would then inflate the property values, and the underlying investors would quickly sell and keep the profits. Housing prices were up nearly 50 percent during the housing boom in Vegas, and many people couldn’t resist getting their slice of the pie. But what people didn’t anticipate at the time, were the home values turning upside down.

Such schemes artificially inflated home values throughout the city and forced many desperate buyers into adjustable rate mortgages which they couldn’t really afford. In some new subdivisions this led to a domino effect of foreclosures. A home once worth $300,000 suddenly dropped to $270,000. And once one or two homes in a neighborhood foreclosed, surrounding property values declined even further and more homeowners became trapped in costly mortgages they might have otherwise been able to escape. Seven of the top 100 zip codes with the most foreclosures last December were in the gaming capital, according to statistics compiled by RealtyTrac, the online marketer of foreclosure properties.

Investigators suspect Las Vegas is just the tip of the iceberg of a growing trend. Expect to hear about similar but less extensive schemes across the country over the next year or two.

Do you think the foreclosure problems in the housing market will worsen or level out?

Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com