Mortgage Fraud Soars, FBI Reports

In 2008, borrowers and mortgage originators are finding it harder than ever to get mortgage applications approved, leading some to resort to exaggeration and fraud to close deals.

According to the FBI, mortgage fraud is on the rise. Each year they publish a report titled, "Financial Crimes Report to the Public" which includes data on mortgage fraud. For the fiscal year ending 2006, they published the following data:

The number of suspicious activity reports (SAR) increased by over 600% from 2002 through 2006. There were 5,623 SARS filed in 2002 in comparison to 35,617 SARS in 2006.

The top 16 states for reported suspicious mortgage fraud activity include: California, Colorado, Florida, Georgia, Illinois, Michigan, Texas, North Carolina, Ohio, Utah, Missouri, Arizona, Indiana, Louisiana, New York, and South Carolina.

Common types of mortgage fraud schemes include:

Some things never change. Despite tough new lending standards and a declining housing market, mortgage fraud continues to climb says a new report from the Mortgage Asset Research Institute (MARI).

• Property Flipping - a false appraisal is done on a recently purchased piece of property. The appraisal lists the property at a much higher value than it really is. Then the owner quickly sells to make a profit.
• Silent Second - the primary lender believes the buyer has funded their own down payment, when in reality they've used a second, non-disclosed mortgage through the seller to fund it.
• Nominee Loans/Straw Buyers - the real buyer's identity is hidden as a "nominee" (another person with better credit) name is used when applying for the loan.
• Fictitious/Stolen Identity - the loan applicant uses another person's identity when filling out the mortgage paperwork.
• Inflated Appraisals - the appraiser and borrower work together to provide an inflated property value to the lender.
• Foreclosure Schemes - con artists lead vulnerable homeowners into thinking they can save their home from foreclosure by transferring their deed and/or paying a fee for services the perpetrators don't really perform.
• Equity Skimming - a way to make money by providing false documents for a mortgage only to quick claim the property, once the mortgage is final, over to an "investor" who never makes a mortgage payment and rents the property until foreclosure takes place.
• Air Loans - a completely false system set up to create fictitious borrowers, lenders, appraisers, employers, credit agencies, etc...often used by scammers who set up offices with phone banks for verification.

Mortgage Fraud Still Soaring in 2008

Some things never change. Despite tough new lending standards and a declining housing market, mortgage fraud continues to climb says a new report from the Mortgage Asset Research Institute (MARI).

According to the report, in the first three months of 2008, mortgage fraud soared 42% compared to the same period the year before. A steep decline in the number of loan applications may be at least partly to blame.

The Mortgage Bankers Association reports that mortgage applications are at an eight year low, making things tough for those working in real estate. Appraisers, loan originators and real estate agents are all scrambling for pieces of an ever shrinking pie as lenders tighten underwriting standards.

Tighter credit standards are making it harder and harder for consumers to get mortgages. This has led some in the lending industry to use their imaginations, or simply lie, to get their client's mortgage application approved.

Income and Employment History Exaggeration

According to MARI, the most common form of mortgage fraud occurs when applicants overstate their earnings or pad their employment history to increase their chance of being approved. MARI also found a large increase in undisclosed and inaccurately reported debts, liens and judgments.

Few expect mortgage fraud to decrease anytime soon. Mortgage brokers are paid on commission, loan officers are rewarded for volume, and their bosses push them to close deals. Until the mortgage industry adopts systems that advance honest, trustworthy mortgage origination, mortgage fraud will continue to plague the industry.

More Mortgage Fraud Information: