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| The quarterly level of prosecutorial activity on cases involving mortgage fraud fell to the lowest level since the financial crisis erupted. Despite the diminishing activity, two states saw a surge.
In the third-quarter 2013, the Mortgage Fraud Index from Mortgage Daily was 655. The index is a reflection of motions and decisions tracked by Mortgage Daily on criminal and civil cases where a home lender was allegedly deceived into making a credit decision. Both the number of cases and the dollar amount of loans involved were factored into the index. The last time the index was this low was in the fourth-quarter 2007, when it came in at 600. There is roughly a three to five year lag between when the mortgage fraud occurred and when case activity is tracked. The recent improvement reflects better quality control by lenders and the increased use of fraud prevention services since 2008. “As mortgage bankers have been hit with a tidal wave of repurchase demands on agency mortgages, they have taken steps to reduce risk on new originations,” Mortgage Daily Founder and Publisher Sam Garcia said. Estimated loan amounts associated with cases tracked totaled $1.1 billion in the most recent period. It was the lowest aggregate dollar amount since the fourth-quarter 2010, when just $0.9 billion in loans were estimated. The number of cases tracked in the third quarter fell to 91 from the second quarter’s 123 cases.
Index by Quarter
 “Based on preliminary fourth-quarter data, the Mortgage Fraud Index could fall another 12 percent in the next report,” Garcia projected. “In addition to an improving trend, the government shutdown slowed prosecution activity.” California was the state with the highest third-quarter Mortgage Fraud Index: 83. The Golden State’s index was down two consecutive quarters. Nevada’s Mortgage Fraud Index was up for the fourth consecutive quarter to land at 67 in the latest report. North Carolina was No. 3 with an index of 60. Based on aggregate loans amounts involved, North Carolina’s $286 million was the worst of any state. Dollar volume soared from the prior quarter’s $147 million. Behind North Carolina’s massive numbers were the Wax House case, which involves an estimated $100 million in fraudulent loans, and a case involving employees of manufactured housing retailer Phoenix Housing Group, which involves an estimated $158 million. No. 2 based on loan amounts involved was Nevada, which saw dollar volume leap to $227 million from $118 million. Top States by Index Level
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