Mortgage brokers originated more than half of the loans where a report of mortgage fraud was filed, according to a new government report. A number of recommended steps lenders can take to avoid fraud appear to be working.
Suspicious activity reports of mortgage fraud numbered 52,868 during the 12 months ended March 2007, the Financial Crimes Enforcement Network announced Thursday. The activity represented a 42 percent increase over 2006, when mortgage fraud SARs had increased 44 percent to 37,313.
The report analyzed a sample of 1,769 depository institution SAR narratives.
“FinCEN’s analysis indicates that the financial community is becoming increasingly adept at spotting and reporting suspicious activities that may indicate mortgage fraud,” FinCEN Director James H. Freis Jr. said in the statement.
False income, assets and debts was the most prevalent type of mortgage fraud and was involved on 43 percent of the SARs. Forged or fraudulent documents were cited in 28 percent of SARs. Occupancy fraud impacted 14 percent of the reports. Some cases involved borrowers who temporarily rented assets in order to qualify, while others involved the fabrication of down payments.
Mortgage brokers originated 58 percent of the loans reported in the SARs analyzed. Brokers actively participated in 25 percent of the fraud schemes and didn’t verify application information in others.
Bad appraisals were involved in 13 percent of SARs filings. Fraudulent appraisals were involved in almost all schemes involving flipping schemes or organized crime. Some of the bad appraisals involved the theft of an appraiser’s identity and license information. Appraisal fraud involved inappropriate comparable sales, inaccurate property descriptions and forged appraiser signatures.
While the number of SARs involving cashout loans has been consistently growing, cashouts were only involved in 3 percent of the SARs analyzed. The same trend was noted for stated income, low and no document loans, which were involved in about 2 percent of SARs.
Among states with the highest increases in SARs were Illinois, which jumped 76 percent; California, which was up 71 percent; and Florida, up 53 percent. Michigan fraud reports were up 52 percent, and Arizona SARs rose 49 percent.
Last year, mortgage loan fraud was the third most prevalent type of SARs .
The report suggested lenders re-verify broker-originated loan packages to cut down on fraud losses. Another recommendation was a simple analysis of income increases and social security and Medicare withholdings. A comparison of signatures on all documents can often alert lenders of possible identification theft.
Lenders were also cautioned to scrutinize multiple transactions where the same mortgage broker, seller, appraiser and settlement agent are used.
Close scrutiny of the HUD-1 settlement statement was recommended to identify large disbursements to an entity or individual whose role is not readily apparent.
Mortgage fraud SARs intercepted before loan funding increased 50 percent in 2007 from the prior year, the report indicated.
“Lenders are increasingly identifying suspected fraud prior to loan approval and reporting this activity,” the study said. “Suspected fraud was detected prior to loan disbursements in 31 percent of the mortgage loan fraud SARs filed between April 1, 2006 and March 31, 2007, compared to 21 percent during the preceding ten years.”
