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.
But during the boom, how many bad loans were there? Using numbers from multiple agencies, the total 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.
Hot Spots
A recent analysis of mortgage industry fraud surveys identified 26 different states as having significant mortgage fraud problems.The survey also identified nine other states in the South and Southwest, seven states in the West and five states in the Midwest as having mortgage fraud problems.
The latest report of the Mortgage Asset Research Institute provides important statistics on the increase of suspicious activities. The same report provides more detailed statistics on the top eleven hot spots.
10 Top Scam states in 2009.
- Florida
- New York
- California
- Arizona
- Michigan
- Maryland
- New Jersey
- Georgia
- Illinois
- Virginia
Interthinx reported that most metropolitan statistical areas (MSAs) in California, Florida, Colorado, Michigan, Ohio and Nevada are of "very high risk." The Washington D.C., Minneapolis-St. Paul, Atlanta and Memphis MSAs remained in the "very high risk" category quarter-over-quarter, while Bend, OR, which moved to a lower risk category in Q1/10, rejoined the category. The Trenton (NJ), Worcester (MA), Providence (RI), Medford (OR) and Nashville (TN) MSAs are recorded as "very high risk" for the first time. For the first quarter of 2011 they reported that risks had "evened out" in since 2010 due to market conditions around the country, but show Nevada and Arizona as having the highest "risk indicators".
Financial Crime Enforcement Network (FinCEN) Suspicious Activity reports show amazing changes to trends as well. Consider the following;
- 6 Year Filing Trends 04-09:
- Up from 6400 to 70,000 per year
Of all of these reports, only about 2% were ever investigated. It is of little wonder that mortgage fraud still exists and is increasing.
According to FinCEN, at least part of the increase can be attributed to increased attention to older loans. From January to March 2010, 78 percent of SARs involved loans more than two years old. Banks and thrifts filed 35,135 mortgage-related SARs from January to June 2010, up from 32,926 in 2009 during the same period. Unfortunately, it seems that all of these conditions will persist in the immediate future, which means consumers (and regulators) need to maintain a high level of vigilance.
The West and Southeast are the two most problematic regions. The regions which were affected the most by the housing bubble/collapse and/or by deteriorating economic circumstances also experience high incidences of fraud. In 2009, "The top mortgage fraud states for 2009 were California, Florida, Illinois, Michigan, Arizona, Georgia, New York, Ohio, Texas, the District of Columbia, Maryland, Colorado, New Jersey, and Nevada."
Under current regulations only banks and insured depository institutions are required to file suspicious activity reports (SARs). FinCEN says SARS are a critical source of information for law enforcement in investigating and prosecuting mortgage fraud related crimes, and that it believes new regulations requiring non-bank mortgage lenders and originators to adopt AML programs and file SARs would be consistent with those businesses' due diligence.
FinCEN has proposed regulatory changes that would require non-bank residential mortgage lenders and originators to also report suspicious activity to the agency and establish their own anti-money-laundering programs to curtail losses.
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.
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