Four of the five states with the highest level of mortgage fraud last year were also among the five states with the highest foreclosure rates. And an analysis of recent loan applications indicates fraud activity is still very heavy.
Suspicious Activity Reports of mortgage fraud to the Federal Bureau of Investigation reached 46,700 during fiscal 2007, according to the Tenth Periodic Case Report to the Mortgage Bankers Association from the Mortgage Asset Research Institute Inc. The level of activity represented about $1 billion in losses.
The report, which was based on data from the Mortgage Industry Data Exchange and the Home Mortgage Disclosure Act, found that employment history and income claimed remain the biggest areas of fraud — though undisclosed debt, liens and judgments jumped 50 percent in 2007.
The fraud epidemic was fueled by investors who wanted a piece of previously rising home prices, originators who assumed the fraud would be masked by appreciations and looser credit and documentation standards, the study indicated.
The report suggested that it will take as many as five years to uncover mortgage fraud from loans originated last year.
MBA said it has requested that more than $31 million be allocated to the FBI to fight fraud over a five-year period. That level of funding could support an estimated 30 new FBI field investigators, two new Department of Justice prosecutors and the operations of Interagency Task Forces in targeted areas with high concentrations of mortgage fraud.
The state with the highest rate of mortgage fraud last year was Florida — which maintained the top spot from 2006, MBA said. Florida had the second highest foreclosure rate during 2007, according to data from RealtyTrac.
Nevada ranked No. 2 in fraud, jumping from the sixth position in 2006 and deteriorating significantly from its No. 37 position three years earlier, MARI’s data indicated. Nevada had the highest foreclosure rate last year.
No. 3 on the 2007 fraud ranking was Michigan, the same spot it held the prior year. Michigan was also No. 3 on last year’s foreclosure ranking.
California, which had the 22nd highest fraud rate in 2003, ranked No. 4 on both the fraud report and the foreclosure report for last year. In 2006, California has the second highest mortgage fraud rate.
Utah held the No. 5 mortgage fraud rate in 2007, jumping from No. 11 the previous year. While Utah had the 15th highest foreclosure rate last year, a report released today from RealtyTrac indicated the number of foreclosures filed in February jumped 33 percent from January.
Georgia, Virginia, Illinois, New York and Minnesota held spots No. 6 through No. 10, in that order, on MARI’s report.
State rankings for subprime mortgage fraud didn’t vary much from the overall rankings, MARI’s report indicated.
Another report announced today from Interthinx suggested significant mortgage fraud is still occurring.
More than 42,000 loan applications taken during the second half of 2007 for nearly $11 billion contained significant misrepresentations of income, Interthinx analysts found. The applications were submitted for review by customers of Interthinx — which provides fraud prevention services. Applications were flagged when income differed on applications submitted to multiple lenders.
“For the first time, the industry is getting a real-time look at the scope of mortgage fraud, and these numbers are staggering,” Interthinx President Kevin Coop said in the statement. “What is really disturbing is that the $11 billion represents just one of the alerts used in the six-month timeframe.”
MBA recommended regular screenings of employees, “as life events over the course of employment may lead to nefarious behavior opportunities.” In addition, periodic vendor screenings were also suggested.
