Repurchase demands continued to drive the number of mortgage fraud reports higher last year — with a growing share of the reports made on loans that were never funded. Occupancy fraud was most frequently involved in the reports — though income and appraisal fraud were also busy categories. An analysis of government data indicates that reports of mortgage fraud were made last year on nearly $30 billion in mortgages.
From Oct. 1, 2011, through Dec. 31, 2011, a total of 204,043 Suspicious Activity Reports were filed by financial institutions. Out of those, 15 percent — or 17,050 — were for suspected mortgage fraud.
Reports of suspected mortgage fraud retreated from the third quarter, when 19,934 reports were filed.
Activity also fell from 18,759 SARs filed in the fourth-quarter 2010. It was the first time since 2010 that the number was lower than a year earlier.
The statistics were outlined in the Mortgage Loan Fraud Update released Monday by the Financial Crimes Enforcement Network.
Looking at just the most-recent quarter, nearly two-thirds of SARs were based on suspected mortgage fraud that occurred at least four years ago.
During all of last year, 92,028 mortgage fraud SARs were filed — accounting for 12 percent of all SARs. Activity jumped from 70,742 mortgage fraud reports filed during calendar-year 2010.
California had the most SARs filed last year. Florida followed, then New York and Illinois.
The Golden State also topped the list on a per-capita basis. Hawaii was next, then Florida, Nevada and Washington, D.C.
By metropolitan statistical area, the Los Angeles area had more SARs filings than any other area. After that were New York, Chicago and Miami.
Using a per-capita ranking, the San Jose, Calif., MSA was worst. Los Angeles was No. 2; followed by Miami; Riverside-San Bernardino, Calif.; and San Diego.
Nationally, mortgage fraud SARs have increased each year since 2001, when just 4,695 reports were filed.
“While the rate of growth slowed from 2008-2010, it accelerated in 2011 primarily due to reports on mortgage repurchase demands on banks,” according to the report. “Those repurchase demands prompted review of mortgage loan origination and refinancing documents, where filers discovered fraud, which was then reported on SARs.”
More than a quarter of last year’s reports were on mortgage fraud that occurred more than five years ago, while nearly a third happened four to five years ago and nearly a quarter took place three to four years ago.
FinCEN reported that the worst vintage for mortgage fraud was 2007, which had 121,165 SARs filings. Not far behind was 2006, which was responsible for 117,371 mortgages that were tied to a SARs report.
After that was 2005’s 60,475, then 2008’s 41,069 and 2004’s 26,744.
An analysis of FinCEN data by Mortgage Daily indicates that the dollar amount of mortgage fraud associated with 2011’s SARs reports worked about to around $29.236 billion.
A prior calculation for 2010 suggested that the amount was $20.496 billion that year.
A sampling of 2011 mortgage fraud SARs by FinCEN indicated that occupancy fraud was involved in 21 percent of the reports, while income fraud was tied to 18 percent. Another 12 percent had appraisal fraud or employment fraud, and 10 percent involved short-sale fraud.
“The report also provides clues that there is significant improvement in mortgage lending due diligence since the height of the housing bubble,” FinCEN said in a statement. “For example, 40 percent of mortgage loan fraud SAR narratives, where SAR filers provide details of why an activity appears suspicious, indicated the filing institution turned down the subject’s loan application, short-sale request, or debt elimination attempt because of the suspected fraud reported in the SAR.”
FinCEN Director James H. Freis Jr. explained in the statement that lenders are identifying fraud before it happens or during the process. He said lenders in a majority of SARs detected misrepresentation before the loan funded.
