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Reports of Real Estate Fraud Increase by Nearly 50 Percent
Reported incidents of real estate and mortgage fraud in the U.S. increased by 45% on fewer loan applications in the second quarter of 2008 from a year ago, according to a report released today by the Mortgage Asset Research Institute (MARI). The MARI Quarterly Fraud Report is based on data submitted by MARI subscribers on loans originated in the second quarter of this year that have since been classified as fraudulent.
Key findings from the report include:
- Fraud most often occurs at the beginning of the loan process. More than 65% of fraud incidents are attributed to “General Application Misrepresentation,” a trend that has continued over the past two quarters. General Application Misrepresentation occurs when information such as a name, occupancy or assets is incorrectly stated during the application process.
- Income misrepresentation on loan applications rose 5% during the second quarter of 2008 versus the first quarter of 2008.
- Asset and debt misrepresentation on the loan application rose 7% during the second quarter of 2008 versus the first quarter of 2008.
- Tax return and financial statement misrepresentation rose 4% during the second quarter of 2008 versus the first quarter of 2008.
- Verification of deposit and bank statement misrepresentation rose 3% during the second quarter of 2008 versus the first quarter of 2008.
- Appraisal misrepresentation climbed to 21% for an overall increase of 6% during the second quarter of 2008 versus the first quarter of 2008.
- Florida, California, and Illinois compose the top three states for reported incidents of fraud. Florida saw a 5% increase in General Application Misrepresentation in the second quarter, while California saw a 20% decrease. Illinois recorded the highest percentages of income and employment misrepresentation on loan applications.
As was the case for the first quarter of 2008, Florida tops the list with the most reported loans with misrepresentation in the second quarter. Twenty-one percent (21%) of reports for loans originated during this time period were for properties in Florida. California ranks second, with 15% of loans reported; and Illinois rounds out the top three with 12% of all loans reported.
Filed under: California, Florida, Illinois, Mortgage Fraud, Real Estate Fraud, Research, Trends
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While these numbers seem alarming, they are not necessarily indicative of a new trend. There has been, and will continue to be, fraud at the outset of the loan application process. In the recent past, with lenders offering stated income and stated asset programs, there was no need to falsify income and asset documentation because none was required. Now with tightened underwriting guidelines and increased documentation requirements, coupled with the need to refinance borrowers that have high loan amounts based upon previously inflated appraised values, and unfavorable loan terms, loan originators and borrowers need to be more creative in finding ways to keep all of the balls in the air. This type of documentation fraud only helps the loan originator, who can earn the commission, but ends up hurting the borrowers, lenders and taxpayers in the long run.
In the past, lenders did not seem mind looking the other way when a questionable applications crossed their desks because, in theory, the collateral securing the loans was increasing, and borrowers that were in trouble could refinance into new loans.
Comment by Brian Kertin — December 3, 2008 @ 10:23 am
The statistic not mentioned here is who the originators are. Are they independant mortgage brokers or directly employed by the lenders themselves.
Since most mortgage brokers have gone out of business and most lenders have stopped accepting third party - mortgage broker - originations then I would have to assume that this “new” fraud is coming directly from the lender/bank level.
Comment by Larry Rubinoff — December 3, 2008 @ 12:30 pm
Don’t forget the correspondent lenders. Many big lenders still have an active correspondent program while they have done away with wholesale lending. Citi still does. Brokers still have an outlet through this program. Depending on how well trained the correspondent underwriters are, fraud could still be getting missed at the broker level. There are still plenty of brokers around, some still with dubious practices, desperate times call for desperate measures, not necessarily ethical or legal. I’d like to think they are the minority. At least I hope so.
Comment by former underwriter — December 3, 2008 @ 9:57 pm
One of the biggest problems in NYC is th failure of the Queens and Brooklyn District Attorney’s office is lack of interest. Each office has an economic crimes bureau, however this department is not really interested in doing follow up.
Comment by S.L.Seabrook — February 17, 2009 @ 1:53 pm