Mortgage Fraud a Problem, Even in Housing Downturn: FBI

The Federal Bureau of Investigation said late Tuesday that mortgage fraud looked to be a rampant problem during 2007, with the number of mortgage fraud Suspicious Activity Reports referred to law enforcement increasing 31 percent last year, to 46,717.

If you’ve ever wondered what fraud means for lenders’ loss severity, this picture has an answer; the appraisal described “recently renovated condominiums” to include Brazilian hardwood, granite countertops, and a condo value of $275,000. Click for larger view. (source: Federal Bureau of Investigation)

The total dollar loss attributed to mortgage fraud is unknown, the FBI said; however, seven percent of reports filed during 2007 indicated a specific dollar loss, which totaled more than $813 million.

“The $813 million loss denoted in this report is just the tip of the iceberg, reflecting only a small percentage of financial damage suffered by victims of mortgage fraud,” said Assistant Director Kenneth W. Kaiser, on the FBI’s Criminal Investigative Division. “The FBI remains committed to working with our law enforcement, regulatory, and industry partners to unravel these complicated fraud schemes and bring their perpetrators to justice.”

Click for larger view. (source: Federal Bureau of Investigation)

Fraud was a problem on the way up in many housing markets, to be sure, but FBI’s report signals an interesting shift towards the effect of the housing downturn on mortgage fraud activity, which is increasingly centered on suspect “foreclosure assistance” programs.

“The downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes,” FBI analysts said in a mortgage fraud report, released Tuesday. “Emerging and re-emerging schemes in 2007 included builder-bailouts, seller assistance, short sales, foreclosure rescue, and identity theft exploiting home equity lines of credit.”

The top 10 mortgage fraud states for 2007 were Florida, Georgia, Michigan, California, Illinois, Ohio, Texas, New York, Colorado, and Minnesota, the FBI said. Other states significantly affected by mortgage fraud included Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey, and Connecticut.

For more information, visit http://www.fbi.gov.

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