A 16-page mortgage fraud report indicates the Sunshine State had more fraud than the rest last year, though Colorado and Illinois have placed more prominently in the rankings during the past few years.
The Mortgage Asset Research Institute Inc. delivered its eighth annual report of U.S. residential mortgage fraud and misrepresentation to the Mortgage Bankers Association.
The Eighth Periodic Mortgage Fraud Case Report to Mortgage Bankers Association analyzed information major mortgage lenders, agencies and insurers have submitted to MARI’s central database, Mortgage Industry Data Exchange, over the past five years from 2001 through 2005.
“Mortgage fraud continues to increase and affect more and more companies and communities,” said Kurt Pfotenhauer, MBA senior vice president of government affairs, in an announcement Tuesday. “The MARI report helps the industry understand where we need to focus our efforts in combating mortgage fraud.
“The MARI report helps the industry understand where we need to focus our efforts in combating mortgage fraud.”
Referring to the reportedly well-attended National Fraud Issues Conference, the economist added, “The mortgage industry has come together to combat the burgeoning crime of mortgage fraud against lenders and innocent consumers.”
Based on reports submitted to MARI, Florida ranked first in the nation for loans originated in 2005 that contained alleged fraud or serious misrepresentation, moving up one spot from its No. 2 position in last year’s report and from No. 6 in 2001. Based solely on the Sunshine State’s origination volume, the reported fraud rate was approximately two and one-quarter times what MARI expected, according to the report.
Utah’s position worsened from the state with the fourth-highest fraud rate in the previous ranking to the second-highest, with about two and one-tenth times what was expected for 2005 originations, MARI said.
Meanwhile, Georgia, which ranked No. 1 amongst all states from 2002 to 2004, had the third-highest fraud rate in 2005 at a little less than twice the national average. This is “a far cry from its 2003 position when it far outstripped every other state” at a rate more than four times the national average, MARI noted, adding that the drop may be due aggressive legislation and enforcement Georgia officials have recently put in place.
While Colorado fell from third in the previous ranking to the fourth spot, with a reported fraud rate one and three-quarters more than what was expected, it showed the greatest “degradation” over the past five years, moving from the 21st ranking for loans originated in 2001.
The fifth-highest fraud rate, 163 percent above the expected, belonged to Illinois. The Prairie state has had a five-year climb toward higher ranks in the fraud list, and although it is not as dramatic as Colorado’s, it’s a steady trend, MARI said.
Missouri, Texas, California, Michigan and Ohio respectively filled spots No. 6 through No. 10 on the fraud list, according to the report.
MARI noted reported fraud in California is lower than it has been in many years, but a significant number of its problems are likely being masked by high real estate appreciation, especially in Southern California and the San Francisco Bay area. In the past decade, California has led other states by substantial margins, yet from 2001 to 2004, California has ranked as good as No. 23 and at worst, No. 17.
The Golden State has experienced exceptional price increases, thereby its low 2005 fraud rate may be somewhat deceptive, according to MARI. Many lenders are in a quandary over reporting applications in which the “income” represents a combined income of families uniting to purchase a home together and these “fraud for Housing” cases are quite different from “fraud for profit” cases lenders are reporting in other areas of the country.
“The industry’s competitive forces are pressuring lenders to adopt new products, some of which have significantly more opportunities for fraud, due to their structure,” MARI said.
MARI recognized South Carolina, as the state with the greatest improvement over the past five years. Its 2005 fraud score ranked the state at 19th and was only 71% of the national average, compared to 2001, when it topped all states with a fraud index score of 479 — almost five times the national average and one of the highest scores MARI has ever recorded, the report said. South Carolina was also commended for showing the greatest improvement in subprime mortgage fraud.
For the most part, the states that report difficulty with subprime fraud are the same ones for overall fraud.
Florida continued to lead as the state with the highest reported subprime fraud, at slightly more than three times the national average, followed by Utah, Missouri, Illinois and Georgia.
However, the reported subprime fraud rate in Georgia, at 172 percent the national average, has dropped dramatically from 2002 and 2003, when the rates were four to six times the national average, MARI said.
Sixth through 10th place on the subprime fraud list respectively belonged to Colorado, Texas, Rhode Island, Arkansas and Ohio, the report said.
Rhode Island, which in the previous year’s subprime ranking was No. 37, “is clearly a statistical anomaly based on the fact that the increase of a few fraud cases in a very small state can create a large percentage change,” MARI said.
For 2006, MARI said rising rates may push additional cases of suspicious activity to surface “at a rapid rate” as some originators press to maintain high origination levels.
