Origination News Feature Story

FBI Says Fraud on the Rise

By James Comtois

WASHINGTON-Mortgage fraud saw a substantial rise in 2008, according to the FBI's 2008 Mortgage Fraud Report. Suspicious Activity Reports referred to law enforcement for mortgage fraud increased 36% to 63,713 during 2008, compared to 46,717 reports in 2007. While the total dollar loss attributed to mortgage fraud is unknown, financial institutions reported losses of at least $1.4 billion, an increase of 83.4% from 2007.

The FBI reported that more than 3.1 million foreclosure filings were reported on approximately 2.3 million properties nationally during 2008, up 81% from 2007 and 225% from 2006. As of 2008, the Western region of the U.S. had the most pending FBI mortgage-fraud-related investigations.

In terms of fraud committed per state, the top 10 for 2008 were California, Illinois, Texas, Georgia, Ohio, Colorado, Maryland, Florida, Missouri and New York. Rhode Island, Massachusetts, Pennsylvania and the District of Columbia were newly identified as having significant mortgage fraud problems.

The report also revealed that criminals continued using old schemes, including property flipping, builder-bailouts, short sales and foreclosure rescues. Additionally, in response to tighter lending practices, they facilitated new schemes, such as reverse mortgage fraud, credit enhancements, condo conversion, loan modifications and pump and pay.

Fraudsters may focus their fraud efforts against new targets that have been created as the result of actions to combat the mortgage fraud crisis. Those looking to purchase foreclosed properties may be potential fraud victims. Fraudsters may find methods to exploit funds earmarked for the mortgage industry from the various legislative acts aimed at stimulating the economy. As loan originators and borrowers increase their use of FHA-backed mortgages, fraudsters are likely to follow this money trail as well.

According to the FBI, the depressed economy in 2008 is expected to persist at least through the end of 2009, continuing to foster an environment for fraud. Since many in the industry may feel pressure to match the income they enjoyed during the real estate boom years, the temptation to commit fraud to achieve this goal may intensify for these individuals. Also, many troubled homeowners may be tempted to participate in illicit deals to avoid foreclosure.

To combat this trend of escalating fraud, the FBI created the National Mortgage Fraud Team in December 2008 to assist field offices in addressing the financial crisis, from the mortgage fraud problem and loan origination scams to the secondary markets and securitization. The NMFT provides tools to identify the most egregious mortgage fraud perpetrators, prioritizes investigative efforts and provides information to evaluate resource needs.

In addition, the FBI began fostering new and existing liaison partnerships within the mortgage industry - such as the Mortgage Bankers Association - and various state and local law enforcement agencies.