Mortgage fraud reports tumbled last year, and almost all of the fraud reported occurred prior to 2010. Appraisal fraud continues to be a problem.
The number of reported instances of fraud or material misrepresentation was down 41 percent between 2009 and 2010, according to the Thirteenth Periodic Mortgage Fraud Case Report from LexisNexis Mortgage Asset Research Institute. It was the “first time in several years” that there was a decline. The level of activity was virtually the same as 2006 — the beginning of the financial crisis.
The findings were based on an analysis of data from the Home Mortgage Disclosure Act and the Mortgage Industry Data Exchange — or MIDEX.
The decline was attributed to a drop in originations, increased attention to loss mitigation and recovery, and fewer resources available to investigate fraud.
“In addition, as the post-economic crisis mortgage fraud landscape has evolved, fraud has become more complex and harder to verify using traditional methods,” the report stated.
Some type of appraisal fraud was found in a quarter of loans originated and a third of funded loans.
“Misrepresentation on loan applications and verifications of deposit, along with appraisal and valuation issues, presented the most egregious problems in 2010 originations,” MARI said.
The report indicated that 1,531 fraud-related indictments or informations were filed by the FBI last year. Convictions numbered 970.
The FBI had 3,020 pending investigations as of Feb. 28, MARI reported. Nearly three-quarters of the cases involved losses exceeding $1 million.
MARI said that the share of investigated mortgage fraud incidents that occurred prior to the current year has risen from less than two-thirds in 2006 to 95 percent last year.
Florida ranked as the state with the highest level of mortgage fraud. New York was No. 2, while California came in third — jumping from the 10th spot in 2009. New Jersey and Maryland also made the top-five list.
By metropolitan statistical area, Los Angeles was one of the worst areas for fraud last year. New York followed, then Washington, D.C., San Francisco, and Miami.
