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FBI calls for mandated broker fraud reporting

National Mortgage Professional
Mar 24, 2014

FBI calls for mandated broker fraud reporting mortgagepress.commortgage fraud, detection, prevention

With the incidences of mortgage fraud on the rise, the federal government is pushing for regulations that would require loan originators to report suspicious activity in the origination process. At a recent press briefing in Washington, D.C., the FBI pointed out that suspicious activity reports (SARS) are only filed by federally insured or regulated financial institutions; loan brokers do not have to comply with the Bank Secrecy Act.

The FBI currently has 642 open cases of mortgage fraud, as compared to 436 cases in 2003, and there were 241 indictments or guilty pleas in 2004 as compared to the year before. The number of SARs that the FBI has received increased 147 percent in 2004 to 17,127 instances of suspected fraud. According to the FBI, a significant portion of the mortgage industry is void of any mandatory fraud reporting. In addition, mortgage fraud in the secondary market is often under-reported, thus the true level of mortgage fraud is largely unknown.

The FBI has joined with the mortgage industry to identify fraud trends and educate the public (See "NAMB Teams With FBI on Mortgage Fraud," April 2005 issues of The Mortgage Press). Some of the current trends in mortgage fraud include:

"Equity skimming
Common equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use of or threat of bankruptcy/foreclosure to dupe homeowners and investors.

"Mortgage-related identity theft
A thief could use a stolen identity to defraud a lender.

"Property flipping
Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. Associates of the "flipper" then repurchase the properties several times for a higher price. After three or four sham sales, the victimized lenders foreclose on the properties. Often, flipped properties are ultimately repurchased for 50-100 percent of their original value.

An analysis of mortgage industry fraud surveys identified 26 different states as having significant mortgage fraud problems. Rounding out the FBIs top 10 "hot spots" of incidents per capita were: California, Colorado, Florida, Georgia, Illinois, Michigan, Missouri, Nevada, South Carolina and Utah.

The FBI has been collaborating with the mortgage industry and Financial Crimes Enforcement Network to create a more productive reporting requirement for mortgage fraud. The FBI has also been working with the mortgage industry through the Mortgage Bankers Association to promote a more efficient and effective method of identifying and reporting fraudulent mortgage activity, otherwise known as the Suspicious Mortgage Activity Report (SMARt Form) concept.

For more information, visit www.fbi.gov.

Mar 24, 2014