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Sometimes being No. 1 in the nation isn't such a good thing.

In 2001, the FBI listed Utah as No. 1 in the country for the amount of mortgage fraud cases reported. But this ranking means more than just a black mark for the state, it also has resulted in higher interest rates imposed by lenders due to the high-risk environment.

With a boom in the U.S. housing market, the amount of mortgage fraud has also begun to rise nationwide.

Anti-fraud officials see it as a "blood-in-the-water" trend — where the money is, the crooks tend to gather. What this means for homebuyers is a risk of ruining their credit, or worse, losing their homes and the equity they've worked years to build for retirement.

According to the FBI, Utah loses millions due to fraudulent loans. From schemes called "flipping," where a property is continually refinanced to rack up fees, to "straw buyers" in which people's identities are used to take out fraudulent loans, unscrupulous lenders have various ways to bilk banks and homeowners alike.

But a team of state lawmakers, state anti-fraud agents and federal agents have been working to fight this elusive form of fraud and, in turn, improve Utah's image among lenders.

"Now that our housing market is booming, I think there's a real opportunity for people to find new ways to beat the system," said FBI special agent Jim Malpede, who specializes in financial fraud.

Malpede said it is difficult to say what attracts unscrupulous mortgage brokers to Utah, but he said it could have something to do with the state's poor history of state regulation or the fact that Utah is also listed by the FBI as a hotbed for other types of white-collar crime, such as investment fraud.

But state officials have stepped up, and last year they changed licensing requirements for mortgage brokers in an effort to weed out fraudulent lenders.

"They've definitely made a very good effort in changing state legislation and regulatory oversight of the industry," Malpede said.

"We've had some pretty high rankings, and we still rank unduly high," said Dexter Bell, director for the Utah Division of Real Estate. "It's a lot, lot better, but we're still too high. We're now tied for seventh in the nation."

Legislation now requires mortgage brokers to be registered and bonded, much like their bank loan officer counterparts.

One major change is the requirement of testing for mortgage lenders in Utah. Bell said last year, his division tested thousands of mortgage lenders.

The 2 1/2-hour exam gauges an agent's knowledge of federal laws, lending practices and state law. Bell said 7,000 lenders passed the test, about 1,000 failed and about 4,000 didn't bother to take the test and simply walked away from doing business in Utah.

But lenders alone are not able to commit fraud. "You need collusion," Bell said, sometimes with crooked appraisers or real estate agents.

Doug LeDoux, a fraud investigator for Utah, said would-be homebuyers need to be careful about deals that seem too good to be true. In many mortgage fraud cases, LeDoux said customers simply didn't want to ask questions because they thought they were getting such a good deal.

"There are cases where a customer is willingly naive. They may know that something is kind of questionable," LeDoux said, "but they go along with it because they want to get that house or get that refinance.

"At the end, when it's all done and they're broken and destroyed, they'll say, 'It just sounded funny, and I knew it was too good to be true, but I just couldn't help myself.' "

While LeDoux has seen people lose their homes and ruin their credit, he has also seen older couples, who have worked hard to own their homes free and clear, fall prey to mortgage fraud and lose their equity.

Mortgage lenders have been known to falsify information on loan applications, such as inflating a client's income information so they can qualify for a larger loan. Some work with appraisers who are willing to inflate the value of a home to also get a larger loan.

LeDoux said one man was doing home loans on vacant lots for $600,000 houses that didn't exist. "They were taking a vacant property, pretending there was a house on it and doing this big loan where really there wasn't a house at all," he said. What many perpetrators count on is that banks and lenders dealing with such huge volumes of loans and refinances won't notice and that their loan will simply slip through the cracks.

However, experts say there are some tell-tale signs that a loan might not be legal.

Homebuyers are literally flooded with stacks and stacks of documents that they are told to sign and initial. LeDoux said it might be worth it, especially for a first-time homebuyer, to have the documents reviewed by an independent lender, even if it might cost a small fee.

If the rate and return sound too good to be true, or when the appraisal price comes back too high, it might be a red flag.

Beware of identity fraud. Some lenders have been known to switch personal information, or worse, use your personal information to take out loans that you did not authorize. LeDoux said always double-check that your personal information on your loan application is correct. Also, within six months after closing a loan, you can run a credit report to make sure no one has taken out loans in your name.

Shop around and don't be afraid to get a second opinion. Builders who insist on using a specific mortgage company and title company may have ulterior reasons, LeDoux said.

Finally, don't be rushed. Ask for loan papers a day in advance of closing and have them looked over by another loan officer for any possible signs of fraud.

Mortgage fraud has more than just an impact on the individual homebuyer, affecting entire neighborhoods and the lending market itself. Foreclosures can drive down the value of homes in a surrounding area, and interest rates can go up.

"We're paying more because we are a higher risk for loans from investors," said Rep. Paul Ray, R-Syracuse, who has worked to combat mortgage fraud through legislation.

Ray said the good news is that a cooperative effort of local, state and federal law enforcement has led to catching more fraud. Recently, this has resulted in better interest rates for Utahns.

Because Utah has dropped from No. 1 to No. 7 in the nation for fraud risk, Ray said interest rates have dropped a quarter of a percentage point.

What this means is that for a $150,000, 30-year mortgage, a monthly payment drops from $852 at 5.5 percent to $828 a month at 5.25 percent. Over 30 years, that is a $9,000 savings.

"Now that the housing market is booming, I think there's a real opportunity for people to find new ways to beat the system. I expect to see an increase in mortgage fraud," Malpede said. "We have made progress, yes, we've made progress, but have I seen a slow down in cases coming across my desk? No, not really."

FBI numbers for suspicious activity reports in Utah in 2004 reached a record 153. So far, 2005 reports have already doubled the number of reports in 2002 with five more months to go.

Ray said much more needs to be done to push Utah even lower in the ranking. In particular, the need to consolidate the regulation of the home mortgage industry. "Builders are under the department of professional licensing, title companies are under the department of insurance, and loan officers are under the department of real estate," Ray said, adding many fraudulent operations bank on the fact that three state agencies probably can't efficiently regulate against fraud.

Ray said the new alliance between state agencies, the FBI and local law enforcement will continue to work on fighting lending fraud. Their work has already resulted in the prosecution of several individuals and has shut down several fraudulent mortgage operations, Ray said.

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