LexisNexis Risk Solutions has issued its 14th Annual Mortgage Fraud Report that shows that while mortgage fraud rates among industry professionals were down in 2011, there is evidence of significant increases in potential collusion fraud activity in the past three years. The LexisNexis 14th Annual Mortgage Fraud Report, formerly known as the Mortgage Asset Research Institute (MARI) Report, examines the current state of subscriber-verified residential mortgage fraud and misrepresentation in the U.S. committed by industry professionals, based on data submitted by LexisNexis Mortgage Industry Data Exchange (MIDEX) subscribers.
Based on incident reports submitted by MIDEX subscribers prior to 2009, evidence of collusion by professionals in the mortgage industry was relatively consistent at just below five percent of all loan originations. Seven percent of loans originated in 2009 were reported with evidence of collusion. That percentage jumped to 9.7 percent for 2010. Last year’s number was down to 6.8 percent, still slightly above historic levels.
LexisNexis utilizes MIDEX submissions to develop representative statistics on a wide range of mortgage fraud and misrepresentation characteristics. The Mortgage Fraud Index (MFI) ranks states on the incidence of fraud, both in terms of investigations and loan originations.
For 2011, Florida headed the list as the state with the highest MFI for investigations followed by Nevada, Arizona, Michigan and Rhode Island. In mortgage originations, New Jersey and Colorado topped the list followed by Florida, Michigan and California.
In addition, closer analysis of the most reported areas for fraud and misrepresentation for loans originated in 2011 yields five Metropolitan Statistical Areas (MSAs) that combined represent 46 percent of all reports received. The top three MSAs were Los Angeles-Riverside-Orange County, California with 16 percent fraud, followed by New York-Northern New Jersey-Long Island with 11 percent fraud, followed by Miami-Fort Lauderdale, Florida with seven percent.
“Increased levels of fraud and misrepresentation in the foreclosure, short sale, and real estate-owned worlds have pushed the issue of collusion to the forefront,” said Tom Brown, senior vice president of financial services for LexisNexis. “Now, more than ever before, these complex schemes are coming under increased scrutiny and investigators need to pay attention to all parties and relationships in non-arm’s length transactions. Data alone is not enough to identify fraud. It’s the application of linking technologies and analysis that shines a light on collusion and fraud in general.”
LexisNexis has also created the first Collusion Indicator Index (CII) to help the mortgage industry understand and pinpoint areas of potential collusion amongst buyers and sellers, saving them time and resources in investigations to detect and prevent mortgage fraud. The CII ranks states and is an analysis of deed transfers where it has been determined that there is a potential relationship between the buyer and seller—particularly when a property has been transferred at a significant loss between relatives and known associates.
For 2011, Alabama, New York, Kentucky, Pennsylvania, and Indiana ranked first through fifth on the Collusion Indicator Index for properties experiencing a 20-95 percent decrease in sales price and mortgage collusion index.
Also in 2011, for properties with a 50-95 percent decrease in sales price, Vermont, West Virginia, Alabama, Pennsylvania, and Louisiana are ranked one through five.
The results for the CII were pulled from LexisNexis’ public record data combined with sophisticated linking technology, which creates a visual view of how linked parties may be involved in potential collusion. Linking public data with traditional sources of industry data is providing a new, more advanced method to detect fraud and misrepresentation.
“The data in our Mortgage Fraud Report reveals that just as the financial world failed to realize the impact of fraud for profit until significant damage was done, the mortgage industry is now waking up to increased instances of collusion, the sophistication of these schemes, and larger resultant losses,” said Tim Coyle, senior director of financial services for LexisNexis. “Unfortunately, this has become the ‘new normal’ in the mortgage industry.”