Assistant U.S. Attorney Gale McKenzie has seen every trick in the book when it comes to mortgage fraud. And in Atlanta, that book is plenty thick.

McKenzie spends most of her waking hours dreaming up ways to fight mortgage fraud here, where the red-hot housing market has racked up the highest fraud rates in the country. Metro Atlanta has the distinction of being a breeding ground for wayward real estate agents, conniving closing attorneys and on-the-take appraisers.

Spurred partly by the increase in housing prices, mortgage fraud has become a popular racket for swindlers because it's so lucrative.

"In the old days, people committed fraud just for the property. You'd see folks who didn't make enough to qualify for a house who would fudge a little bit on their income, " McKenzie said. "What we're seeing today is fraud for profit."

Mortgage fraud became McKenzie's primary focus about three years ago. Since then, she's helped nab nearly 200 fraudsters and crack some of the most extensive mortgage fraud rings in the country. Yet she isn't satisfied.

"Prosecution isn't the answer, " says McKenzie, who's trying to change the mortgage industry itself. She devotes significant time to speaking to Realtors, bankers and others in the real estate lending arena, trying to teach them how to stop fraud in its tracks.

"By the time a case gets to us, the money is gone, " she said. "This is something that could be stopped at any point in the process by the people in the industry. They can have a really big impact, and that's really my mission."

Q: What are some of the most prevalent fraud-for-profit schemes?

A: There are all kinds of variations, but the common element is a borrower with a good credit score, either through a stolen Social Security number or through someone who is paid to act as a 'straw borrower.' Then the scheme orchestrators target a neighborhood in which they can artificially inflate the purchase price.

Let's say a legitimate seller has a house for sale for $500,000. They tell the homeowner they'll give them the $500,000, but they want to do a half-million dollars in upgrades, so they get the seller to sign a purchase and sale agreement for a million dollars. When the sale closes, the closing attorney disburses the $500,000 of 'upgrade money, ' minus closing costs, to shell companies that are controlled by the scheme orchestrators. And often the straw borrowers form their own shell companies so they can be paid.

Q: Where do they get these straw borrowers?

A: There are organized fraud groups who recruit people with good credit from churches, synagogues and mosques. They know that people who are in a religious organization usually take good care of their finances, so those are the primary recruiting grounds. They also recruit illegal aliens.

A lot of these straw borrowers are otherwise upstanding people who are motivated by greed. They can make $50,000 to a quarter of a million dollars for a few minutes of work — just signing the mortgage documents. In return, they're told that they won't have to worry about making the mortgage payments, that there's a lot of ballplayers and celebrities in Atlanta who'll be happy to rent the property from them, and that the recruiters will pay the insurance and property taxes, which of course they don't. It sounds good upfront. Think of all the infomercials out there about being able to quit your job and become a real estate baron.

Q: Are the straw borrowers used once and that's it? Or do they keep using the same people?

A: They'll use them for as many transactions as they can in a 30- to 60-day time period before the loans start showing up on the credit report. Once they get someone qualified they'll use them as much as they can because some of the borrowers are getting paid up to a quarter-million dollars at closing. That's really gone up recently because they've progressed into million-dollar loans. Five years ago, $100,000 was a significant amount of loss per property. Now many fraudsters will inflate a single property by over a million dollars.

Q: How does mortgage fraud impact a neighborhood?

A: Fulton and DeKalb counties are No. 1 and No. 3 for mortgage fraud in the country. Property taxes increased by as much as 50 percent solely because of artificially inflated sales, while the neighborhoods' true property values decreased through foreclosures and abandoned houses. The houses are sometimes turned into crack houses. I had one case in which they turned it into a home for juvenile prostitutes and were hosting retreats for drug gangs.

Q: Mortgage fraud involves a group of people acting in cahoots. How many levels are usually involved?

A: There's the appraiser who is paid under the table to inflate the property value. Quite often Realtors are involved because their commissions go up as the sales price goes up. Then you've got the mortgage broker who's supposed to be responsible for selecting the appraiser; and the closing attorneys, who are supposed to be the last line of defense but sometimes they're in on it, too. One way you can tell a fraudulent closing is the hordes of people. Nobody trusts anybody, so they all show up to make sure they're going to get their money.

Q: What are the challenges in trying to catch organized groups like these?

A: It takes a tremendous amount of time to make a case. Although we prosecute vigorously in this office — we've prosecuted close to 200 defendants and sent some to jail for up to 30 years without parole — we're not making a big dent in it at this time.

Mortgage fraud is so lucrative that many of the drug traffickers are learning it in jail. They get their recruiters together in jail, they get some straw borrowers and shortly after their bus ride back to town from jail, they're driving an Escalade because they've hit the ground running with mortgage fraud. They can make a tremendous amount of money without the danger of drug trafficking. I've had them sit down when I've convicted them and tell me, 'We thought you'd be proud of us because we're not dealing drugs anymore.'

Q: How are you cracking down?

A: We're doing more sting operations. We're also encouraging the industry to police itself. We're working on educational programs and fraud training for appraisers and Realtors. I'm also talking to closing attorneys and working with lenders to rewrite closing instructions. A lot of things are computerized now so that loan applications are only being looked at by a computer. Humans could look at a fraudulent application and catch things like, the applicant only went to high school yet she's making $70,000 a month.

We see it from a unique perspective, we see how the system goes wrong, so we're helping the industry redesign its procedures so that we don't leave common sense behind.

THE GALE McKENZIE FILE

• Childhood: Grew up in a peach orchard in Barney, near the Florida line.

• Residence: Vinings

• Education: Bachelor's degree in business from Auburn University; law degree from University of Georgia.

• Interests: Gardening, photography, international travel and "going barefooted on every possible occasion."

• People would be surprised to know: She won a Telly Award (doled out for outstanding advertising and video productions) in 1998 for "Little Favor, Big Mistake, " a cautionary training film she helped produce after cracking a ring of con artists who romanced bank tellers and wooed them into their fraud schemes.

• Motivation: Sanctity of hearth and home. "After 9/11, it's of even greater importance to everyone, whether they're a resident of a $50,000 or a $2.5 million neighborhood, all of which have been attacked by mortgage fraud."