This explains a bit. I understood the ramp up of home prices in some areas, but places like Vegas always puzzled me.

LAS VEGAS In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.
Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."
Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.
Prosecutors have charged Eve Mazzarella, 30, and Steven Grimm, 45, with bank fraud, alleging the two caused banks to make more than $107 million in dubious loans and netted a profit of at least $15 million. Both defendants pleaded not guilty to the charges. A trial has been scheduled for October.
To the untrained eye, the size, scope and sophistication of the alleged scheme is noteworthy. But to the FBI in Las Vegas, the problem is the opposite: In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.
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Scott Hunter, the FBI's supervisory special agent here, describes the region as "mortgage fraud ground zero."
The problem is so widespread that everyone seems to know someone affected by it. Even one of the FBI's Las Vegas agents has a connection: Special Agent Henry Schlumpf's wife was the real estate broker who sold the Rolling Hills Drive house last year to a straw buyer representing Mazzarella and Grimm.
The problem is hardly confined to Nevada. On a national level, mortgage fraud is a pandemic that stretches from California to Rhode Island, and from Alaska to Florida. The FBI currently has 1,380 active investigations into mortgage fraud, compared with 818 for fiscal 2006.
According to the website MortgageDaily.com, reported cases of fraudulent mortgage loans amounted to more than $4 billion in 2007, up from $1.6 billion in 2006.
But the $4 billion number doesn't come close to describing the losses generated by mortgage fraud. Neighboring homeowners take a financial hit. Nowhere is that more apparent than in Las Vegas, where housing prices appreciated by a staggering 40% in 2004 alone. The surge in values drew investors, speculators and first-time buyers into the market like gamblers to a craps table.
"We've got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid," says the FBI's Hunter. "That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated."
Many of those who overpaid are stuck with mortgages larger than what their homes are worth. Those who took out home-equity lines of credit based on inflated valuations of their homes are now caught in a financial squeeze. Las Vegas had one of the nation's highest foreclosure rates last year, with 4.2% of its homes being repossessed by banks, up 169% from 2006.
"There's a close correlation between states with foreclosure problems and states with mortgage fraud problems," says Sam Garcia of MortgageDaily.com. "There's a good portion of foreclosures that probably resulted from some form of mortgage fraud."
Profit or possession
Mortgage fraud comes in two flavors: "fraud for housing" and "fraud for profit." Fraud for housing occurs when would-be home buyers overstate their income or misrepresent their credit history to secure a mortgage to buy a more expensive house than they can reasonably afford. In most cases, people who commit fraud for housing intend to live in their homes and pay their mortgages.
Fraud for profit is considered the more serious crime, since the goal is to rip off banks. In one common version of these schemes, a fraudster buys a home, gets an inflated appraisal, then resells the home at the artificially high price to a straw buyer who has no intention of living in the house or paying off the mortgage.
Mortgage fraud perpetrators can't act on their own; they need accomplices to trick a bank into underwriting a loan that's larger than a property is worth. To pull this off, mortgage fraudsters often work in league with corrupt appraisers, who inflate the value of target properties, says Jenny Brawley, head of mortgage fraud investigations at Freddie Mac.
The fraudster also needs someone to play the role of the buyer. In a true sale, a buyer would never willingly overpay for a home, but mortgage fraud schemes don't work unless a straw buyer shows up and puts in a sky-high offer for a property.
Straw buyers fall into two categories: willing accomplices who hope to share in the profits; or dupes who are told they can make a quick $5,000 or $10,000 by joining a "real estate investment partnership."
Once a mortgage fraud perpetrator has his team in place, he needs to figure out how to cover his tracks. Fraudsters know they can't close a bogus real estate transaction one day, then disappear the next without raising suspicion. To keep the banks at bay, sophisticated con artists pay the mortgage bills for six months or even a year after a sale, creating the illusion of a legitimate real estate transaction.
Until 2006, when the real estate market began to cool in earnest, a fraudster could often resell a property, essentially covering his tracks.
"A lot of these schemes were masked because of an appreciating market," says Freddie Mac's Brawley. "The orchestrator of a fraud could flip 50 or 100 houses and do pretty well."
Case studies
In the past few years, regulators have filed hundreds of cases against mortgage brokers, appraisers and straw buyers. Although the details of each case are unique, they often share similar characteristics:
Eye-popping price appreciation. How hot were real estate values in Texas in the winter of 2003? So hot that Carlos Paul Gonzalez arranged to buy a home in The Woodlands, a Houston suburb, for $376,850 on Jan. 29, then sell it for $515,795 on Feb. 12.
That sounded too good to be true to federal prosecutors there, who filed an indictment charging Gonzalez and a partner, Ken Russell Browder, with recruiting straw buyers to overbid for a series of properties, including the home in The Woodlands.
The two men have pleaded not guilty in the matter, but in April, a title agent named in the indictment, Jannice Bonner, pleaded guilty to participating in the mortgage fraud scheme.
Straw buyers. Last December, federal prosecutors in Utah charged five men and one woman with defrauding two lenders out of $13 million in mortgage loans. Prosecutors allege the defendants inflated the values of homes, buying and selling them through straw buyers and a pair of shell companies, Home Owners Group (H.O.G.) and Paragon Investment Group (P.I.G.).
Professional involvement. In recent years, the FBI has estimated that 80% of mortgage fraud cases involve real estate professionals who couldn't resist the temptations of easy money. Other cases involve people with criminal backgrounds migrating toward the mortgage business.
The epidemic of mortgage fraud is a reminder that wherever easy money is made, criminal activity soon follows.
"Mortgage fraud has always been here," says Hunter, "but the level of complexity has gone up. It's not just white-collar criminals. There are elements inside the real estate industry. You don't just show up one day and do this. You learn to perfect the craft of mortgage fraud."
A 40% rise in one year
In terms of mortgage fraud, Las Vegas was bound to become a hotbed. When property values there soared 40% in 2004, speculators saw they could get rich quick without having to visit the city's casinos.
For Larry Watson and his wife, Anne Marie, their home at the corner of Rolling Hills Drive and Gold Mine Drive had soared in value since they bought it in 1999 for $139,000. For years, they rented out the property, but they say continuing problems with tenants had resulted in tens of thousands of dollars in legal fees.
In February of 2007, the Watsons say, they just wanted out, and listed the home for sale at $310,000 with a local real estate agent, Erin Schlumpf. But by then, the real estate market in Las Vegas had cooled, and for two months, the Watsons got no offers.
In May, Schlumpf stunned them, saying a young man named Jonathan Carter was willing to buy their property for $340,000. But there was a catch: After the closing, the Watsons would have to make a $43,000 payment to a company called Pro Design, effectively reducing the sale price to $297,000.
In June, the Watsons say they got worse news: An appraiser determined that the value of their home was only $290,000, and therefore, the bank wouldn't approve the $340,000 mortgage application. Schlumpf then said Carter would be willing to buy the house for $295,000, but the catch remained: The Watsons would still have to pay $43,000 to Pro Design.
"I didn't understand where the $43,000 was going," says Larry Watson, who works in the information-technology department of Clark County, Nev. "I was advised that Pro Design is a corporation that holds money to be used in the repair of a property. I really got suspicious."
Nevertheless, exhausted by the process and concerned about the weakening market, the Watsons accepted the deal.
At closing, a payment of $43,000 was made to Pro Design, a company controlled by Steven Grimm, according to Nevada state records, as well as the federal indictment. According to the documents signed at closing, Grimm's wife, Eve Mazzarella, received a commission as broker and agent for the buyer, and Schlumpf and her boss split a commission for representing the Watsons.
The Watsons never met Carter, the buyer, since he didn't show up at the closing. But Schlumpf urged them to sell quickly in June because Carter was in a hurry to move into the house, Watson says.
Carter says now he never intended to live in the house. Instead, he told USA TODAY, he was led to believe he'd make money on a real estate investment brokered by Grimm, just as several of his friends had. All he had to do was allow the home to be purchased in his name, and Grimm would handle the mortgage payments.
Shortly after the sale of 1729 Rolling Hills Drive last year, Carter began receiving notices from Amtrust Bank saying that he was behind on his monthly payments.
Carter says he called Grimm to complain. "He was like, 'Oh, it's getting taken care of,' " says Carter. But Grimm made only one mortgage payment after his call, Carter says, and the bank has been dunning him since. Carter's attorney, Kirk Kennedy, says the bank has begun foreclosure proceedings.
Schlumpf, wife of an FBI agent, says she can't comment on the matter, as it's under investigation. The FBI wouldn't comment, either. And there is no evidence to suggest that anyone connected to the deal other than Grimm and Mazzarella is under investigation.
Of the 277 properties that Mazzarella and Grimm are accused of using to defraud banks, this is the box score from 1729 Rolling Hills Drive: The Watsons lost $43,000 from the profit they might have earned on their property; Carter's credit rating is ruined; and Mazzarella and Grimm could end up in jail.
The property was no gold mine after all.