How Common is Mortgage Fraud?

The FBI Mortgage Fraud Report is conducted annually to better understand the threat posed by mortgage fraud crimes against the U.S. and its citizens.  This most recent report was based on 2010 information and released in 2011. The information was compiled from many sources including the FBI; federal, state and local law enforcement; mortgage industry; other government agencies such as Fannie Mae and Freddie Mac.

According to the FBI, “mortgage fraud is a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale, and loan modification.”

Those that commit mortgage fraud include licensed/registered and non-licensed/registered mortgage brokers, lenders, appraisers, underwriters, accountants, real estate agents, settlement attorneys, land developers, investors, builders, bank account representatives, and trust account representatives. Organized crime has also been involved in mortgage fraud.

Mortgage fraudsters use their experience in the banking and mortgage-related industries—including construction, finance, appraisal, brokerage, sales, law, and business— to exploit those in mortgage and banking industry.  They have access to information and tools that would appear that they are legitimate such as access to financial documents, systems, mortgage origination software, and notary seals.

Key Findings

Mortgage fraud continued at elevated levels in 2010 which is consistent with the levels in 2009.

Mortgage fraud schemes readily adapt to economic changes and modifications in lending practices.

Total dollar losses directly attributed to mortgage fraud are unknown.

A continued decrease in loan origination from 2009 to 2010 (and expected through 2012), high levels of unemployment and housing inventory, lower housing prices, and an increase in defaults and foreclosures dominated the housing market in 2010.

The top states for mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey; reflecting the same demographic market affected by mortgage fraud in 2009.

The most common mortgage fraud schemes in 2010 included loan origination, foreclosure rescue, real estate investment, equity skimming, short sale, illegal property flipping, title/escrow/settlement, commercial loan, and builder bailout schemes. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.

The FBI along with the Department of Justice (DOJ) joined forces in a mortgage fraud take down referred to as Operation Stolen Dreams. It targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in combating mortgage fraud.

The current and continuing depressed housing market will likely remain an attractive environment for mortgage fraud perpetrators who will continue to seek new methods to avoid loopholes and gaps in the mortgage lending market. These methods will likely remain effective in the near term, as the housing market is anticipated to remain stagnant through 2011.

You need to be very careful, if you are in a difficult financial situation and are trying to keep your home. The most common schemes are those which target distressed homeowners, including foreclosure rescue, loan modification, and short sales. The fraudsters may try to inflate property appraisals, falsify bank statements, income and tax documents.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Debt, Identity Theft, Money & Identity

This post was written by John Ulzheimer