2011 saw jump in mortgage fraud reports
(MoneyWatch) Reports of mortgage fraud were up in 2011, according to research released recently by LexisNexis. In fiscal year 2011, the FBI collected a total of 93,508 Suspicious Activity Reports (SARs) from all federally insured financial institutions. That's a 33 percent increase from FY 2010.
The report examines the current state of fraud and misrepresentation committed by residential mortgage industry professionals.
In 2011, mortgage fraud rates were down among industry professionals, but evidence of collusion remained higher than it was before the mortgage meltdown of 2009 when the average was just below 5 percent of all loan originations.
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The number of loans showing evidence of collusion fell last year to 6.8 percent, but remained higher than the pre-2009 average. In 2010, 9.7 percent of loans originated showed evidence of this type of conspiracy.
Collusion occurs when two or more parties conspire to commit fraud or another illegal act, and the parties are often business associates or related. Transactions between close associates or relatives are often referred to as "non-arm's length."
"Increased levels of fraud and misrepresentation in the foreclosure, short sale and real estate-owned worlds have pushed the issues of collusion to the forefront," Tom Brown, senior vice president in the financial services division of LexisNexis, said in a press release.
According to LexisNexis' Collusion Indicator Index (CII), six states -- Alabama, New York, Kentucky, Pennsylvania, Iowa and New Jersey -- have the highest levels of potential collusion activity. In general, according to the report, transactions that involve 50 to 95 percent price reductions at deed transfer have the biggest potential for conspiracy.
Data from LexisNexis' Mortgage Industry Data Exchange Index (MIDEX) ranked New Jersey as the number one state for mortgage fraud, based on fraud reported on loans originated in 2011. (Colorado, Florida, Michigan, California, Illinois, New York, Pennsylvania, Virginia and Texas rounded out the top 10.)
Despite its third-place ranking on the Mortgage Fraud Index (MFI), Florida's MFI score is the state's lowest in five years.
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Incredibly, five metropolitan statistical areas make up nearly half -- 46 percent -- of all fraud reports received on loans originated in 2011. Los Angeles-Riverside-Orange County, Calif., topped the list and accounted for 16 percent of all reports received. Eleven percent of all fraud reports came from New York-Northern New Jersey-Long Island, N.J.-N.Y. Miami-Ft. Lauderdale, Fla., accounted for 7 percent of the reports, and 6 percent came from Chicago-Gary-Kenosha, Ill.-Ind.-Wis. and Denver-Boulder-Greely, Colo., respectively.
"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," Tim Coyle, senior director in the Financial Services division of LexisNexis, added in the press release. "Unfortunately, this has become the 'new normal' in the mortgage industry."
