Mortgage Fraud Suspicious Activity Rises 7% says FinCEN

During the first half of 2010, the number of suspicious activity reports (SARs) indicating mortgage loan fraud increased by 7 percent according to the Financial Crimes Enforcement Network (FinCEN).

The agency released two fraud reports covering the first six months of 2010 and show the number of occurrences rose to 35,135 in the first half of 2010 compared with 32,926 in the first half of 2009.

In part, the increase can be attributed to increased attention to older loans spurred by repurchase demands. In the first quarter of 2010, 78 percent of reported activities occurred more than two years prior to filing, compared with 44 percent in the same period of 2009, showing a continued focus on loans originated from 2006 to 2008.

“SARs are one of the most important sources of lead information for mortgage fraud investigations available to law enforcement,” said FinCEN Director James H. Freis, Jr. “As a member of the President’s Financial Fraud Enforcement Task Force, FinCEN remains active with law enforcement and other partner agencies in the task force to provide lead information and to identify potential abuses in order to combat mortgage loan fraud.”

The reports also show growth in a new type of property flipping scheme used in the context of short sales described as “flopping.” Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.  However, filers’ use of this term has been limited, appearing in only two MLF SAR narratives.

During 2010 Q1, filers referenced the related terms “short sale” in 827 MLF SAR narratives and “broker price opinion” or its abbreviation “BPO” in 41 narratives.  FinCEN has also seen an increase in activity reports related to government sponsored mortgage relief.  In the first half of 2010, depository institutions and regulators submitted over 1,000 SARs citing $336.7 million in suspicious activity related to applications for government sponsored loan modification relief.  The number of SARs referencing these programs increased steadily in 2010, peaking in May at 278 filings and $85.7 million in suspicious activity.



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