For the first time in recent history, distressed homeowner fraud has displaced loan origination fraud, according to findings in a report by LexisNexis Risk Solutions.
The firm's annual mortgage fraud report examines the current composition of residential mortgage fraud and misrepresentation involving industry professionals in the United States.
Mortgage fraud suspicious activity report submissions increased over the past several years (click on charts below, provided by LexisNexis). However, a significant number of these SARs no longer involve loan origination fraud. Per the FBI’s "Financial Crimes Report to the Public" for FY 2010-2011, “for the first time in recent history, distressed homeowner fraud has displaced loan origination fraud as the number one mortgage fraud threat in many offices.”
According to the FBI, 93,508 mortgage-related SARs were collected in 2011, up nearly 33% from 2010, LexisNexis notes in its report.
In the second chart, the FBI reports that there was a decrease in pending cases in 2011. FBI mortgage fraud investigations resulted in 1,223 criminal indictments and 1,082 convictions in 2011 alone.
The year-over-year increases in SAR submissions are not entirely reflective of mortgage fraud activity, LexisNexis points out. SAR submissions are only required of federally insured financial institutions and their affiliates, though this will change this year as the Financial Crimes Enforcement Network implements mandatory reporting for nondepository institutions including mortgage brokers and lenders. Therefore, fraud experiences of independent mortgage entities are currently not likely reflected in Figure 1.
Among loans originated in 2011, Florida ranks third on the mortgage fraud index with an MFI of 227 — slightly more than two times the rate of reported fraud and misrepresentation by industry professionals that is expected based on the proportion of loans originated in the state. However, Florida’s origination MFI is the state’s lowest in the past five years.
Five states — Florida, Michigan, California, Illinois and New York — occupy space on top ten lists of LexisNexis' investigation and origination mortgage fraud indices.
At 16%, Los Angeles topped the list of areas in which a reported loan was originated in 2011. New York and Miami followed at 11% and 7%, respectively.
LexisNexis found that loans originated in 2011 have significantly fewer cases of appraisal fraud and misrepresentation than in previous years. At 17% in 2011, this type of misrepresentation is down from a high of 34% in 2009.