The Financial Crimes Enforcement Network (FinCEN) in its new report, Mortgage Loan Fraud SAR Filings In Fourth Quarter and Calendar Year 2010, has released full year data showing the number of suspicious activity reports involving mortgage loan fraud (MLF SARs) increased four percent in 2010 to 70,472 compared with 67,507 MLF SARs filed in 2009. The report also shows that the growth rate of MLF SARs began to slow over the last two to three years. Looking at just the 2010 fourth quarter, filers submitted 18,759 MLF SARs, a one percent decrease from the 18,884 filings over the same period in 2009.
“FinCEN remains active with law enforcement and other partner agencies to provide lead information and to identify and combat potential abuses in the mortgage market,” said FinCEN Director James H. Freis Jr. “As a member of the President’s Financial Fraud Enforcement Task Force, FinCEN is coordinating with the United States Trustee Program (USTP) and the Federal Bureau of Investigation (FBI) to identify potential mortgage loan fraud in a number of areas including identifying potential abuse of the bankruptcy system to facilitate mortgage fraud.”
The FinCEN report found that references to bankruptcy have steadily increased over time in MLF SAR filings. In 2010, six percent of all MLF SARs contained a key term related to bankruptcy in the SAR narrative, compared to one percent in 2006 and 2007. In 2010, mortgage loan fraud was cited in 54 percent of all SARs referencing bankruptcy fraud, up from 42 percent in 2009. Some MLF SARs specified the type of bankruptcy filing, most frequently Chapter 7, which was cited in 27 percent of 2010 reports citing both bankruptcy and MLF.
Filers in their SARs also called attention to debt elimination scams as one of the emerging practices. Debt elimination scams were cited in nearly 1,300 MLF SARs in 2010. In these SARs, filers noted subjects sending a variety of documents or bogus payment methods to financial institutions, in attempts to eliminate or satisfy mortgage obligations. SAR filers over the course of 2010 explicitly referenced “flopping” in 112 SARs last year. This compares with relatively stable occurrences of suspicious activity involving broker price opinions and short sales in 2010.
Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference. Anecdotal feedback on this practice from law enforcement and industry sources suggests that the volume of related MLF SARs is much lower than the actual number of suspected flopping incidents. The increasingly dated activities reported on SARs suggests a lack of emphasis on this type of current activity.
The FinCEN report also contains data of state, county, and metropolitan statistical area (MSA) by total number of and per capita filings of MLF SARs. For instance, the report shows that Nevada had the highest number of MLF SARs per capita in 2010, followed by Florida, California, Illinois and Georgia.
The five MSAs with the highest per capita filings of MLF SARs in 2010 were Miami, Fla.; Las Vegas; San Jose, Calif.; Riverside, Calif. and Los Angeles. The five counties with the highest number of MLF SARs per capita were Miami-Dade County, Fla.; Gwinnett County, Ga.; Broward and Orange Counties in Florida; and Nassau County in Long Island, N.Y.
FinCEN also reported that all types of SARs filed by depository institutions in 2010 fell 3 percent to 697,389 compared with 720,309 SARs filed by depository institutions in 2009. But, the total number of SARs filed in 2010 by all types of financial institutions covered by the Bank Secrecy Act grew nearly 4 percent to 1.3 million SARs up from 1.9 million filed in 2009.