sun editorial:

Ripe for problems

Lawmakers should act to end Las Vegas’ reputation as ‘ground zero’ for mortgage fraud

Friday, June 6, 2008 | 2:08 a.m.

Federal prosecutors say a Las Vegas real estate broker and her husband masterminded a complex mortgage fraud scheme that netted them millions.

In an indictment unsealed in March, prosecutors allege that Eve Mazzarella and her husband, Steven Grimm, netted at least $15 million in fraudulent deals on 227 homes. The couple allegedly used straw buyers and limited liability companies to try to cover their tracks.

The case is notable because of the scale of the alleged crime, but it is hardly unique. Mortgage fraud investigations have overwhelmed law enforcement officials. The hot housing market, which attracted speculators and investors, was ripe for fraudulent deals.

“A lot of these schemes were masked because of an appreciating market,” Jenny Brawley, head of mortgage fraud investigations for Freddie Mac, recently told USA Today. “The orchestrator of a fraud could flip 50 or 100 houses and do pretty well.”

Such deals helped fan the hyperinflation in the market that led to the inevitable crash, which has hit Las Vegas particularly hard. Scott Hunter, the FBI supervisory special agent in Las Vegas, said Southern Nevada is “mortgage fraud ground zero.”

“We’ve got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid,” Hunter said. “That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated.”

As a result, many people who legitimately entered the market have found the equity in their houses evaporate and others have found themselves with loans that far outweigh the actual value of their homes.

State and federal officials should have the mortgage crisis high on their priority list. Lax regulation and minimal oversight made it easy for crooks to operate. Lawmakers should strengthen regulatory oversight and add more penalties to toughen the law and protect people from fraud.