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Suspected Mortgage Fraud Reports to FBI Grew 5% in 2009

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The number of suspected mortgage fraud activities reported to law enforcement grew 5% during fiscal year 2009 to 67,190, according to the latest yearly mortgage fraud report from the Federal Bureau of Investigation (FBI). FBI mortgage fraud pending investigations rose 71% from fiscal year 2008, while Department of Housing and Urban Development - Office of Inspector General (HUD-OIG) pending investigations rose 31% in the same time. Of all pending FBI mortgage fraud investigations during FY 2009, 66% involved dollar losses totaling more than $1m. Additionally, the FBI estimates $14bn in fraudulent loans originated in 2009. The top five states for mortgage fraud during 2009 were California, Florida, Illinois, Michigan and Arizona: "[T]he distressed economy witnessed during 2009 is expected to persist through 2011, and the housing market, despite increased scrutiny of mortgage loan originations and recent government stimulus interventions, is expected to remain volatile for the same period," the FBI wrote in its report. "This will continue to provide a favorable environment for expanded mortgage fraud activity ... which means law enforcement may not realize a downturn in fraud reporting until 2013." The FBI noted more than 2.8m properties had foreclosure filings in 2009, a 120% increase from two years earlier. From 2008 through 2009, Congress passed various stimulus packages and foreclosure prevention programs, but according to the FBI each has potential fraud vulnerabilities. "Vulnerabilities associated with these and similar programs include the lack of transparency, accountability, oversight, and enforcement that predisposes them to fraud and abuse," the FBI said. "These vulnerabilities could potentially lead or contribute to an increase in government, mortgage, and corporate frauds, as well as public corruption." Among prevalent mortgage fraud schemes in 2009 were loan origination, foreclosure rescue, builder bailout, equity skimming, short sale, illegal property flipping, reverse mortgage fraud and loan modification. And loan modification fraud will continue as an ongoing concern in light of the volume of distressed borrowers. "As mortgage industry employment opportunities contract in response to the aforementioned market stressors, industry participants are migrating from subprime lending to loan modification companies and [Federal Housing Administration] lenders," the FBI said. "There is a concern that loan modification companies and government-insured lenders are managed and/or operated by corrupt individuals or are employing those formerly involved in fraudulent subprime lending activities." The FBI also announced today the results of the broadest-ever mortgage fraud sweep, involving 1,215 criminal defendants nationwide -- including 485 arrests -- who are allegedly responsible for more than $2.3bn in losses. Write to Diana Golobay.

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