Mortgage Fraud on the Increase as Loan Volume Falls

Mortgage fraud rose by 26 percent in 2008 from the previous year even though fewer loans were issued. What gives? With all the attention on mortgage and appraisal regulation, stricter underwriting guidelines and the airwaves abuzz with news of industry misdeeds, how could the problems increase?

Maybe that’s just it. Perhaps all the attention on the bad loans that triggered the housing bust and financial crisis has sensitized the industry to question what once would not raise an eyebrow. But the Washington Post reports that a study on mortgage fraud, conducted for the Mortgage Bankers Association by Mortgage Asset Research Institute, says otherwise.

"With fewer loan originations today, the data suggest that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud," said Denise James, one of the study's authors. The study noted that the spike in fraudulent activity cases can only be partially attributed to more vigorous reporting and investigations.

And the Oscar winner for the worst state for mortgage fraud? Rhode Island? Rhode Island displaced Florida for the number one troubled state for 2008. “Reports of fraud in Rhode Island were three times what were expected given the number of loans made there.” (Can anyone explain that?) Florida maintained second position with Illinois, Georgia and Maryland following. Maryland landed in the top 10 for the first time in the study’s 11-year history, shooting up from the 15^th slot in 2007.

Completing the top 10 list were New York, Michigan, California, Missouri and Colorado.

Application misrepresentation, which includes falsifying a borrower’s income, represented about 61 percent of all 2008 reported cases followed by fraud on tax returns and financial statements. Fraud related to credit reports dropped from 9 to 4 percent.

John Courson, president and chief executive of the Mortgage Bankers Association, said in a statement that lenders must be vigilant about combating the fraud because it is "more prevalent today than it was at the height of the boom in mortgage loan originations." Washington Post