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Suspicious loan activity reports shrink first time in a decade

The number of suspicious activity reports from banks citing possible loan fraud decreased by 29% last year, the first drop in 16 years.

Until 2012, mortgage loan fraud was the only suspicious activity report that increased every year, beginning in 1996. The past three years alone accounted for nearly 46% of all instances of potential mortgage fraud in the past decade, the Financial Crimes Enforcement Network said in a report Wednesday.

Fraud-related activities, including mortgage loan fraud, accounted for 23% of all suspicious activities reports from depository institutions in 2012. This is a modest decrease when compared to FinCEN's 2011 calendar year.

However, only two of the seven fraud types saw a decline in reported activity in 2012, with each of these experiencing double-digit decreases, including mortgage loan fraud.

Attention to insider abuse activities within financial institutions is high, and insider abused-related criminal prosecutions have increased.

The Federal Bureau of Investigation said while a majority of bank failures in recent years resulted from declining market conditions, insider abuse caused by bank officers and directors remains a factor in many loan fraud activities recorded in the past decade.

Some of the activities that raised red flags include engaging in mortgage loan fraud by submitting misrepresentations of borrowers’ income, employment, credit, occupancy and other requirements.

Loan officers were often identified as employees in some of these activities.

Meanwhile, broker relationships comprised 4% of the total data-set. All SARs reviewed in this category involved real estate or mortgage brokers engaged in mortgage loan fraud.

Typical activities tied to brokers include submission of fraudulent information or statements, misrepresentations of occupancy or employment, or other tactics utilized in fraudulently obtaining a mortgage for which a borrower would not otherwise qualify.

"Some accountant borrowers committed mortgage loan fraud on their own behalf by providing false financial or occupancy information with their loan application," FinCEN explained. 

The agency added, "In order to appear better qualified for a loan, some non-accountant borrowers committed mortgage fraud by altering documents that had been prepared by their accountant."

Furthermore, officer relationships comprised 3% of the total data-set. Loan officers engaged in various commercial or mortgage loan fraud activities including misrepresenting borrower income, occupancy, employment; submission of fraudulent or altered documentation; or violating their lending limit.

Meanwhile, mortgage loan fraud by accountants or CPA letters — a requirement for approval of some mortgages — also involved loan modification, debt elimination or short sale fraud schemes in cases of pending foreclosure.

"Banks, savings institutions or credit unions filed the majority of the SARs. However, mortgage companies, mortgage service companies, credit card servicers and processors, and other financial service companies filed 250 of the 9,631 accountant or CPA-related SARs," FinCEN explained. 

cmlynski@housingwire.com

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