Mortgage fraud

Federal and state authorities are investigating allegations of an elaborate mortgage fraud involving about 100 people living in or near this small factory town who say they unwittingly took out loans to buy houses at inflated prices in Indiana.

The borrowers, who include truck drivers, factory workers, a pastor and a hair stylist, say they were duped by acquaintances into signing stacks of documents and didn't know they were applying for loans. Instead, they thought they were joining a risk-free "investment group."

Now, many of the loans are in default, the borrowers' credit ratings are in ruins, and lenders are pursuing the organizers of the purported investment group in court. Companies stuck with the defaulting loans include Countrywide Financial Corp., the nation's largest home lender, and Argent Mortgage Co., another big lender.

Mortgage fraud, involving loans obtained by providing false information, has mushroomed in recent years as lenders have pushed for speedier loan approvals in an effort to remain competitive and milk maximum profits from the now-fading housing boom. The Federal Bureau of Investigation reported that mortgage fraud led to losses of $1 billion in 2005, up from $429 million a year earlier. Some of the fraud that slipped through during the boom is only now starting to surface.