Mortgage Fraud, Foreclosures and Neighborhood Decline Meeting
Increasing foreclosure rates can lead to immediate and visible increases in crimes such as theft, vandalism, squatting and arson. Over time these crimes damage the social fabric of a neighborhood or a metropolitan area for decades to come.
NIJ hosted a meeting on Foreclosures and Crime to examine three main themes that relate to crime and foreclosures:
- Mortgage fraud.
- Intimate partner violence.
- The onset of crime in neighborhoods with high rates of foreclosures.
The meeting was held March 31 to April 1, 2009, in Charlotte, N.C.
- Read a summary of the meeting (pdf, 9 pages).
- Read the complete meeting minutes (pdf, 65 pages).
- Review the commissioned papers, presentations, presenter information and abstracts, which are divided into these categories:
Backdrop — Buildup to Mass Foreclosure
Presentation: Buildup to Mass Foreclosure
National and Local Level Data
Presentation: Data Sources for Estimating Foreclosure and Abandonment Risk
Acquiring reliable, consistent data on home foreclosures is challenging. First, researchers must define what actually constitutes
a foreclosure. For example, some data providers report a foreclosure filing as a foreclosure, but not all foreclosure filings
actually end in repossession or an abandoned property. Then there is the issue of coverage. No one foreclosure data source
covers both the entire extent of the country and the entire mortgage market.
Data on loan performance are proprietary and can be quite expensive. Those who are able to purchase these data sets are not able to share them. They require extensive recoding before they can be analyzed. Additionally, many loan performance datasets, while rich in information about the terms of the loan, are missing other useful information, such as the race of the borrower.
HUD's new Neighborhood Stabilization Program (NSP) provides emergency assistance to state and local governments, allowing them to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. HUD evaluated multiple datasets for information on foreclosures, subprime loans, defaults, and delinquencies. NSP funds were allocated to states and local jurisdictions using estimates of foreclosures (based on a formula that calculated the rate of foreclosure starts over the past 18 months.) The following publicly available datasets were used in estimating the foreclosure rates: Home Mortgage Disclosure Act (HMDA) data, the Office of Federal Housing Enterprise Oversight (OFHEO) Home Price Index and Bureau of Labor Statistics Local Area Unemployment Rate data.
In addition to estimating foreclosures at the local level, HUD also calculated an abandonment risk score for each census tract based on vacancy data provided by the United States Postal Service (USPS) to help state and local governments in their efforts to target the communities and neighborhoods with the greatest needs. Data on foreclosures can be found in court records, tax assessor offices and in other public service departments such as public works, zoning enforcement or police departments. These data are not often in a format that is conducive to analysis because of missing or incomplete data. Also, sometimes agencies are not willing to share the data, data does not exist, or data only exists in fragments that must be compiled from many agencies. Cities like Charlotte, North Carolina, or Philadelphia, Pennsylvania, record extensive amounts of data on nearly all changes (e.g., activities, transactions, services, geographic features) that occur within their jurisdictions, including foreclosed properties. Doing so allows them to analyze foreclosures within a complete context. These presentations and discussion will review the aforementioned datasets and describe how they are relevant to understanding the current foreclosure crisis.
Mortgage fraud is, essentially, bank robbery without a gun. Residential mortgage fraud played a substantial role in the inflationary stage of the real estate bubble and, because fraudulently originated loans almost universally end in foreclosure, it is one of the primary causes of the current economic crisis. Fraud in the United States is committed by organized rings, street gangs, terrorist organizations, drug traffickers, local real estate professionals and your neighbors. Street-level crime, ranging from vandalism and arson to prostitution, drug trafficking and violent crimes against persons, moves in with mortgage fraud. Despite severely reduced origination volumes, the incidence of fraud is rising precipitously because of desperation, the lack of effective government and lender prevention protocols, and economic stabilization efforts that have unintentionally made fraud easier to commit. The foreclosure and economic crises will not end until fraudulent loans are no longer funded, but that will not happen until we adopt robust "zero tolerance" policies that identify and prevent the diversion of additional funds into the hands of criminal profiteers.
Reports of fraud in the mortgage loan process have grown exponentially in recent years, becoming one of the fastest growing white-collar crimes in the United States. In this paper, we examine the impact of fraud on the Atlanta metropolitan statistical area (MSA). Preliminary results from cluster analysis suggest that ZIP codes with more fraud have higher housing turnover and price appreciation. Second, using logistic regression we find that fraud is more likely to occur in zip codes with a greater nonbank and subprime lender activity during the 1997–2003 time period. Results are preliminary and would benefit greatly from additional data on both borrowers and additional MSA's. In addition, the dramatic growth of sub-prime lending in the U.S. led to the emergence of some unscrupulous lenders and lending practices. The Office of the Attorney General of the State of New York asked us (PR. Collins and Nigro) to assist in examining the pricing practices of seven mortgage brokers suspected of over-charging minority applicants during the 2005–07 time period. This analysis briefly overviews the statistical methodology employed to examine the pricing policies of brokers and provides some summary findings of the New York Attorney General.
In 2006 and 2007, Florida ranked first in the United States for mortgage loans that contained alleged fraud against the lenders, according to the Mortgage Asset Research Institute (MARI). In 2008, Florida was ranked second in the United States. MARI ranked the Miami-Dade Metropolitan area in the top 10 metropolitan areas in the United States for instances of Mortgage Fraud. In 2007, Florida ranked second in the United States in foreclosures filed. There were 279,325 foreclosures filed in Florida. This was an increase of 124% from 2006 and 129% from 2005. In 2008, Florida was again second in the United State in foreclosures filed exploding to more than 500,000, which equates to 4.5 out of every 100 households filing foreclosure. MARI estimates that 70–80% of all foreclosures contain some type of mortgage fraud. In 2007, Governor Crist enacted the Mortgage Fraud Statute FSS 817.545 that made mortgage fraud a third degree felony. This new law enabled state, county and local law enforcement to arrest for violations of mortgage fraud, a crime traditionally investigated by the Federal Bureau of Investigation (FBI). In the 2008 legislative session the mortgage fraud statute was enhanced to a second degree felony for incidents over $100,000, and with the passage of FSS 193.133, law enforcement works with the property appraiser's office to reduce the tax burden on homeowners living in the area of the mortgage fraud. However, with the exception of Miami-Dade County, many law enforcement agencies are ill trained and equipped to handle the laborious task of investigating a mortgage fraud case. Now in 2009, it is clear that a concerted nationwide effort to combat mortgage fraud should be undertaken. It is recommended that through grant funding and legislative action, a nationwide Mortgage Fraud Task Force be created to combat mortgage fraud throughout the United States. The Task Force should be modeled after the Miami-Dade Mortgage Fraud Task Force. This presentation will discuss that task force and its key elements.
Mortgage fraud is a term that is used a lot in the news these days. It is a crime that is frequently misunderstood by government, law enforcement, borrowers and sometimes the mortgage banking community itself. It was only within the last few years that it was actually classified as a crime on its own, yet it costs financial institutions, mortgage insurance companies, the FHA and thousands of homeowners billions of dollars every year. Much of this loss is unidentified or misidentified. This presentation will define what mortgage fraud really is, why it is so difficult to quantify, who is behind it and who its victims are.
Intimate Partner & Household Violence
The current housing foreclosure crisis is changing the urban landscape and posing challenges to communities faced with the potential of serious attendant problems, such as crime and violence (Wilson and Paulsen 2008; Bess 2008). The present paper discusses one of those problems, domestic violence, defined as the threat or use of physical force with the intent of physically or psychologically harming others in family or family-like settings. Like crime in general, anecdotal and media accounts suggest domestic violence may be a consequence of housing foreclosures, but a relation between these disruptive events and such violence has not been systematically determined through rigorous empirical research. At the request of NIJ, therefore, the present paper proposes a theoretical foundation for anticipating this relation. Specifically, the social disorganization theoretical tradition is discussed, and domestic violence research cast within this tradition is reviewed. The applicability of this framework for anticipating a relation between housing foreclosures and domestic violence is then critically examined. Limitations are identified, and an argument is offered that the incorporation of general strain theory can compensate for identified shortcomings of social disorganization theory. The paper closes with a summary of empirical questions, issues, and problems that can be addressed by combining these two theoretical traditions.
Paper: The Nexus between Economics and Family Violence: The Expected Impact of Recent Economic Declines on the Rates and Patterns
of Intimate, Child and Elder AbuseChristopher D. Maxwell, Michigan State University/The University of Michigan, Bio Rebecca J. G. Stone, Michigan State University
Paper (pdf, 46 pages)
This paper reviews the connection between several key micro-economic measures and a cadre of family violence measures. These key economic measures we focus on include family income, employment status and socioeconomic status inconsistence within the family. This review will include a discussion of why each of these three economic measure might influence the likelihood of domestic violence, an assessment of the available evidence about the extent of the connection between these measures and various forms of family violence, and a discussion about the limitations of the evidence that hinders our capacity to accurately forecast what may happen during the current economic crisis. The paper will conclude with a summary of several possible research studies that could quickly be undertaken to fill the gaps with "shovel ready" data.
The Division of Violence Prevention (DVP) at the Centers for Disease Control and Prevention focuses on the primary prevention of self-directed (i.e., suicidal behavior) and interpersonal violence, including child maltreatment, youth violence, intimate partner violence and sexual violence. DVP researchers are analyzing existing data to understand the associations between indicators of the economic downturn and violence-related outcomes. For example, CDC's National Violent Death Reporting System (NVDRS) is a state-based surveillance system that links data from law enforcement, coroners and medical examiners and vital statistics in a way that captures considerable information about the circumstances contributing to violent death. We are using NVDRS data to examine the extent to which economic-related crises such as foreclosure and eviction are noted as circumstances of suicides. We are also utilizing historical data on suicide rates from the National Vital Statistics System to quantify associations with economic indicators, including unemployment rates. I will describe some of the questions we are pursuing, the data being used, and initial results. The analyses are ongoing so the results are preliminary.
Neighborhoods and Crime
Paper: A Theoretical Underpinning of Neighborhood Deterioration and the Onset of Long Term Crime Problems from Foreclosures Ronald E. Wilson, National Institute of Justice, Bio Derek J. Paulsen, Eastern Kentucky University, Bio Paper (pdf, 47 pages)
This paper describes the importance of studying how geographically concentrated foreclosures can influence long-term crime problems. These foreclosures could lead to "bad neighborhoods" that have an impact on the quality of life for residents. This work draws from evidence in criminology, sociology, geography, economics and urban studies suggesting that researchers should study the dynamics of neighborhood deterioration and how it relates to crime. We will discuss the role of territorial expansion by the mortgage industry in the revitalizing and creating of new neighborhoods that increase the size of the metropolitan area and examine the consequences of having to maintain that new growth should decline occur. We will define links between territorial expansion, the speed of decline and the problems created for residents on the lower economic ladder that move into new neighborhoods. And we will determine how mortgage fraud and age of buyer may play a role in the geographic clustering of foreclosures and what that means for property decline. Additionally, we will discuss the process of home and neighborhood deterioration and show how deterioration can create new crimes. We will note how changes in the types of businesses in a neighborhood can further its decline and make it more difficult to reverse that decline. The paper finishes by arguing that society is witnessing a new and sudden process of entire venting of a neighborhood population. We are unsure of what will take place as a result. This decline could create deviant places in a much shorter time period and "shock" the metropolitan system.
Presentation: Impacts of Stunningly High Foreclosure Rates for Understanding Community Crime Rates, Community Crime Prevention, Co-Produced Safety and Reactions to Crime — Considering Various Theoretical Alternatives Ralph B. Taylor, Temple University, Paper (pdf, 40 pages) | Presentation | Bio
A review of some of the most widely used models for understanding community crime differentials suggests that no one model would be a better guide than another for thinking about how to prevent increasing crime, how to encourage the most effective community crime prevention, or how to structure the most effective partnerships to co-produce public safety in the context of rapidly rising foreclosure and abandonment rates. All models have substantial deficiencies. The current foreclosure crisis may represent in its pacing and spatial patterning a substantial challenge to several of them. Only models securely grounded in an ecological framework seem designed from the ground up for modeling impacts and responses to such challenges. But even these frameworks are lacking in some ways. Most importantly, all of these models, save for the political economy one, are inadequately connected with current scholarship on the growth of suburban poverty and the connections between economics and MSA structures. Both these latter streams of scholarship point up key themes of contextual variation and historicity.
The National Neighborhood Indicators Partnership (NNIP) is a collaboration between the Urban Institute and local data intermediaries in 31 cities. These groups have built and operate regularly updated neighborhood-level data systems and apply their data in work with local stakeholders to address practical problems and opportunities. This presentation will explain the key factors that lie behind the success of these groups and illustrate their work with recent applications related to the national foreclosure crisis. It will also review the agenda of the overall NNIP network. The session will close with a presentation of data on the types of neighborhoods where spillover effects are likely to be most severe (as characterized by poverty rate, racial/ethnic composition, distance rings from the primary city central business district and region). Neighborhood variations in the share of high-cost loans that go to investors (rather than owner occupants) will also be examined.
Case Study Examples
Presentation: Assessing City- and County-Level Patterns of Foreclosure and Crime — An Exploratory Analysis Across Large U.S.
Cities and Florida Counties Eric P. Baumer, Florida State University, Bio Kevin Wolff, Florida State University
Much of the media attention on foreclosure has singled out particularly high mortgage default rates in specific cities or counties and has speculated about a variety of possible negative consequences for these places, including elevated crime. Yet relatively little systematic research has evaluated the merit of such claims. We advance knowledge in this area by analyzing recent crime and foreclosure data across a sample of U.S. cities drawn from the nation's largest metropolitan areas, some of which have experienced very high levels of foreclosure and some of which have been relatively buffered from the housing crisis to date, and a sample of Florida counties, a few of which are national leaders in foreclosure rates but the majority of which have experienced foreclosure patterns near or below the national norm. We begin by briefly summarizing relevant literature on a possible empirical link between foreclosure and aggregate crime rates and providing an overview of possible causal processes and the state of existing data infrastructures relevant to studying those processes. We then present preliminary findings from our analysis of foreclosure rates and crime rates across large U.S. cities and Florida counties, focusing on 2006–2008, a period during which foreclosures nationwide increased substantially and other dimensions of economic standing also deteriorated significantly.
Paper and Presentations: The Neighborhood Context of Foreclosures and Crime Brandon Behlendorf, University of Maryland, Bio Ronald E. Wilson, National Institute of Justice, Bio David Kirk, University of Maryland
The recent crisis of foreclosures has raised concerns about an impending crime wave targeting abandoned properties and causing neighborhoods to deteriorate further. Questions remain, concerning the type of crime that would be affected and in what neighborhoods these changes would occur. Using crime, housing, and census data from Charlotte, North Carolina, we test the effect of foreclosures on both property and violent crime rates, controlling for social disorganization, residential construction patterns and spatial dependence. We test these effects at two different levels of neighborhood geography and incorporate individual housing data to assess the mechanisms by which foreclosures affect neighborhood levels of crime. Overall, foreclosures were significantly and positively related to violent crime and residential burglary at both the tract and block levels. Results indicate that the effect was greatest in neighborhoods with a high amount of new housing construction, rather than in disorganized or low-income communities. The results suggest that changes to crime rates that result from an increase in foreclosures could threaten the stability of new homes and neighborhoods that were built at the height of the previous housing bubble.
While the recent foreclosure crisis has succeeded in bringing national attention to the impact of foreclosures on communities, for many communities, foreclosure problems are not a new reality. In most communities, residential foreclosures are a persistent low-level social problem that is often spatially concentrated and associated with disorder problems. This study provides a discussion of foreclosure problems within Lexington, Kentucky, a medium-size city that was not largely affected by the current foreclosure crisis. Although, the foreclosure rate has been fairly consistent within Lexington, research indicates that foreclosures are mostly concentrated within areas of high crime and within HOPE VI relocations. A discussion of research findings and implications for policy will be provided.
This presentation will highlight The Providence Plan's work around crime and foreclosure mapping in the City of Providence, Rhode Island. Rhode Island's capital Providence is a dense, older community that recently experienced an incredibly overheated housing market. Foreclosures have ravaged all but the most affluent neighborhoods, but are particularly concentrated in the poorest and highly transitional areas with a high concentration of Latino residents. Examples include mapping of basic crime, copper theft, foreclosure initiations, boarded/suspected abandoned properties, and a preliminary analysis of correlation between foreclosures and certain crime categories. It will also include examples where we combine crime, foreclosure, property assessment, and other data with local knowledge in a Community Safety Initiative project involving police, corrections and a local Center for Disease Controls. In terms of Foreclosure Response, it will outline a foreclosure and distressed property management application currently under development that uses open-source database and web-mapping technologies.
Responses to Foreclosure: Federal, State & Local Initiatives
Presentation: Responding to Foreclosure — Federal, State, and Local Initiatives. Cornelia Sorenson-Sigworth, Bureau of Justice Assistance, Bio Louis Tuthill, National Institute of Justice, Bio Joint Presentation
The number of vacant and abandoned properties in communities across the United States has increased by unprecedented amounts,
and the mortgage fraud that lead to these foreclosures has played a key role in this increase. Mitigating the effects of foreclosure
is vital to preventing crime (by reducing the frequency of this occurrence) and to assisting re-habitation after a foreclosure.
The factors leading up to foreclosure are multifaceted and include exotic mortgages, market speculation, falling housing prices and financially overextended buyers. These factors impair homeowners' ability to pay their mortgages. Resources and information about this issue and how it relates to crime are critical for the growing number of communities experiencing its effects.
As part of the Department of Justice's effort to help communities respond to vacant and abandoned properties, the Bureau of Justice Assistance (BJA) convened a working group of representatives from communities in different regions of the country. The group identified promising local prevention and enforcement responses to foreclosure issues. This has allowed BJA to develop a set of resources and information that will be useful to the communities experiencing this problem. Our paper will discuss these resources; examine other current Federal, State and local responses to foreclosure; and identify promising prevention and enforcement initiatives to stabilize neighborhoods.