Mortgage Fraud Up Record 26% in 2008

MARI: Mortgage Fraud Up Record 26% in 2008

Sorohan, MikeLAS VEGAS--Reported incidents of mortgage fraud increased by 26 percent in 2008 to unprecedented levels, the Mortgage Asset Research Institute said yesterday in its annual report to the Mortgage Bankers Association.

MARI's 11th Periodic Mortgage Fraud Case Report to MBA found that Rhode Island ranked highest in incidents of reported mortgage fraud, with more than three times the expected amount of reported fraud for its origination volume. Rhode Island, making its first appearance on the MARI Top Ten list of states, was followed by Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

“With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,” said Denise James, LexisNexis risk and information analytics group director of Residential Mortgage Solutions. “Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur. It is therefore imperative that the mortgage industry continue to share information and insights, and collaborate in the fight against mortgage fraud.”

The report examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on data submitted by MARI subscribers.
The top fraud incident type in 2008, representing 61 percent of all reported frauds, was application fraud, the fifth year in a row it topped the list. Second were frauds related to tax returns and financial statements, which jumped by 60 percent (from 17 percent) of reported frauds in 2007, to 28 percent of reported frauds in 2008. Additional documented fraud types included, in order of volume, frauds related to appraisals or valuations; verifications of deposit; verifications of employment; escrow or closing costs; and credit reports.

“Mortgage fraud is more prevalent today than it was at the height of the boom in mortgage loan originations,” said MBA President and CEO John Courson. “Mortgage fraud continues to be a threat to our members and to consumers.”

Courson said MBA continues to advocate spending in the federal government's fiscal 2010 budget that will increase resources for law enforcement . “We have to give law enforcement the tools and the funding they need to prosecute cases of mortgage fraud,” he said.
James attributed one factor in the higher numbers to improved use of technology by lenders and servicers, who catch instances of fraud that they had not detected previously.
“Lenders are performing more due diligence and catching incidences of mortgage fraud before they go into the pipeline,” James said. “But that is shifting cases of mortgage fraud to areas where there is not proper due diligence.”
Other report findings:

--After improving in 2006 and 2007, Georgia jumped from seventh to fourth place in 2008;--California, ranked fourth in 2007, declined to eighth in 2008;--Maryland jumped from 15th in 2007 to fifth in 2008; and--The volume of reported frauds related to credit reports dropped from 9 percent to 4 percent between 2007 and 2008.

Additionally, the report noted three “emerging” fraud schemes:
--Foreclosure prevention schemes, in which fraudsters pose as “professional, knowledgeable foreclosure specialists.” These fraudsters promise to work out foreclosure problems or buy the home while offering the homeowners tenancy. In some cases, once documents have been obtained, the fraudster sells the property and evicts the tenants. “Fraud in the past has been a crime of opportunity,” James said. “Now, it is emerging as a crime of desperation.”
--Elderly and Immigrant Identity fraud, which the report notes is not new, but is gaining in notoriety. Fraudsters steal identities of elderly and immigrant consumers and use the identities is “straw buying” or other property transactions. “This is currently happening in reverse mortgage situations,” the report said; and
--Builder Bailout Fraud, in which fraudsters secure funds for condominium conversions or planned community development properties that, unbeknown to the investor, will not be completed.
“To combat fraud, the industry must pay attention to details,” the report said. “Mortgage bankers must act with a sense of constant vigilance to protect their pipelines from being tainted with preventable fraud risk by leveraging smarter technologies and acquiring more relevant information about their customers, employees and vendors.”
The report is available on the MARI web site, http://www.marisolutions.com/.

Michael S. Richardson
http://www.preventmortgagefraud.com/