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FBI reports mortgage fraud increases in 2008-2009

Jul 09, 2009

A Federal Bureau of Investigations (FBI) report released this week says that mortgage fraud cost U.S. lenders more than $1 billion in 2008, and will cost lenders even more in 2009. Financial institutions reported 63,713 incidents of mortgage fraud in 2008, costing lenders more than $1.4 billion. Based on reports filed in March 2009, the FBI predicts more than 70,000 cases of mortgage fraud this year. The report identifies industry insiders, including mortgage brokers, lenders, property appraisers, underwriters, accountants, and real estate agents, among the fraudsters. The purpose of the study is to provide insight into the breadth and depth of mortgage fraud crimes perpetrated against the United States and its citizens during 2008. This report updates the 2007 Mortgage Fraud Report and addresses current mortgage fraud projections, issues, and the identification of mortgage fraud “hot spots.” The objective of this study is to provide FBI program managers with relevant data to better understand the threat, the trends, allocation of resources, and to prioritize investigations. The report was requested by the Financial Crimes Section, Criminal Investigative Division (CID), and prepared by the Financial Crimes Intelligence Unit (FCIU), Directorate of Intelligence (DI). This report is based on FBI, state, and local law enforcement, mortgage industry, and open-source reporting. Information also was provided by other government agencies, including the US Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Federal Housing Administration (FHA), Internal Revenue Service, US Postal Inspection Service, and the Federal National Mortgage Association. Suspicious Activity Reports (SARs) were obtained from the Financial Crimes Enforcement Network (FinCEN). Industry reporting was obtained from the Mortgage Asset Research Institute (MARI), RealtyTrac, Inc., Mortgage Bankers Association (MBA), Interthinx, and Radian Guaranty, Inc. Some industry reporting was acquired via open-sources. While the FBI has high confidence in all of these sources, some inconsistencies relative to how various organizations catalog their statistics are noted. SARs are cataloged according to the year in which they are submitted. However, their information may describe activity that occurred months or years previously. The geographic specificity of industry reporting varies; some companies report at the zip code level, others by city, region, or state. Many of the statistics provided by the external sources, including FinCEN, FHA, and HUD-OIG are captured by fiscal year, while this report focuses on the calendar year findings. While these discrepancies have minimal impact on the overall findings stated in this report, we have noted specific instances in the text where they may affect conclusions. See Appendix B for additional information for these sources. Geospatial maps were provided by the Geospatial Intelligence Unit, DI and the Crime Analysis Research and Development Unit, Criminal Justice Information Services Division. Some finding of the study include: ► Mortgage fraud continued to be an escalating problem in the United States during 2008. Although no central repository exists for collecting mortgage fraud complaints, virtually all law enforcement and industry statistics indicated an upswing in mortgage fraud activity. SAR mortgage fraud filings from financial institutions increased 36 percent to 63,713 during Fiscal Year (FY) 2008 compared to 46,717 filings in FY 2007. The total dollar loss attributed to mortgage fraud is unknown; however, at least 63 percent (1,035) of all pending FBI mortgage fraud investigations during FY 2008 involved dollar losses totaling more than $1 million. ► A decrease in loan originations and an increase in defaults and foreclosures continued to dominate the downward trend in the housing market in 2008. While the amount of mortgage fraud cannot be precisely determined, industry experts agree that there is a direct correlation between fraud and distressed real estate markets. As the housing market continued to decline in response to an increase in housing inventories, lack of sales, and new foreclosures surface, to include a wave of Alt-A and Option ARM loans due to reset beginning in April 2009, real estate values softened, and fraud reporting increased throughout 2008. ► Analysis of available law enforcement and industry information indicates the top states for mortgage fraud during 2008 were California, Florida, Georgia, Illinois, Michigan, Arizona, Texas, Maryland, Missouri, New Jersey, New York, Ohio, Colorado, Nevada, Minnesota, Rhode Island, Massachusetts, Pennsylvania, Virginia, and the District of Columbia. Rhode Island,Massachusetts, Pennsylvania, and the District of Columbia were new to the list in 2008, replacing Utah, Indiana, Tennessee and Connecticut from 2007. ► The downward trend in the housing market during 2008 provided a favorable climate for mortgage fraud schemes to proliferate. Several of these schemes have the potential to spread if the current economic downward trend, as expected, continues into 2009 and beyond. Increases in foreclosures, declining housing prices, and decreased demand place pressure on lenders, builders, and home sellers. These and other market participants are perpetuating and modifying old schemes, including property flipping, builder-bailouts, short sales, and foreclosure rescues. Additionally, they are facilitating new schemes, including reverse mortgage fraud, credit enhancements, condo conversion, loan modifications, and pump and pay in response to tighter lending practices. For more details on the report, click here for the FBI's 2008 Mortgage Fraud Report "Year in Review."  
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