Editor's note: This post is part of an ongoing series on mortgage fraud. Previous posts included what types of fraud exist and who is participating.
Scope of the Problem
Over the last ten years, real estate fraud has grown to become one of the most significant threats to profitability in the residential real estate industry. It has reached epidemic proportions. The American real estate industry provides a staggering amount of opportunity for those who want to commit fraud. Yet, the truly frightening aspect of fraud is not what we know about it. Rather, it is what we do not know about it.
To be sure, fraud is not a factor in every mortgage loan, or even in every mortgage office. But the outcome of even one fraudulent loan can affect the entire industry, in general, and individual practitioners, specifically. The real estate boom of the last few years, combined with the doubly dangerous refinancing craze, has facilitated an unprecedented increase in cases of mortgage fraud. In the summer of 2006, as interest rates rose, the concern became that more frauds would emerge in an effort to keep pace at any cost with the high business volume of previous years. Sometimes if a loan file looks too good to be true, it just might be, and may contain fraud!
Mortgage fraud opportunism has been on the rise because the conditions have been riper than ever. The FBI has identified a many factors, which include "a decrease in loan originations, increased unemployment, increased housing inventory, lower housing prices, and an increase in defaults and foreclosures," which have generally made borrowers/homeowners more desperate, and hence more vulnerable to being defrauded.
The Mortgage Bankers Association, or MBA, has estimated that 10% to 15% of mortgage loans have some kind of fraud involved. This means that 2 to 3 million home loans originated in 2006 could have been fraudulent.
That comes to more than 7,500 new fraudulent loans every business day.
Consider how much money is involved:
Who benefits from such fraud? Based on industry standards, loan officers and others involved in the mortgage transaction will generate roughly just more than $8 billion in fees from fraudulent transactions, while real estate companies and agents themselves will earn more than $13 billion in commissions from these fraudulent transactions. These calculations are based on average fees collected on a purchase transaction.
NOTE: There is no desire to insinuate that real estate agents are all involved in fraudulent transactions. But in considering the total cost of these fraudulent transactions, agent commissions should be calculated. The Mortgage Asset Research Institute (MARI) released a report which shows incidents of fraud committed by mortgage industry professionals had increased by 7% in 2009.
The jump in mortgage fraud is a troubling trend, given that it played a big role in setting the housing crisis in motion, with mortgage professionals doing things like listing false income claims for borrowers, and overstating a home's appraised value. Next week we will look at the top states for mortgage fraud.
Click Here for more information on our recently updated Mortgage Fraud class online, available for 6 hours of MRE, Master of Real Estate Credit. And don't forget that our updated Mortgage Fraud course online is discounted through the month of May. We also offer many discounts on Twitter or Facebook.
Connect with us online!
Comments