The level of mortgage fraud decreased for the first time in several years in 2010, as declining loan origination and overall economic malaise contributed to less instances of deception in the process. LexisNexis said reported incidents of verified mortgage fraud and misrepresentation by professionals in the industry decreased 41% from 2009 to 2010. Still, the level of verified cases “does not necessarily correlate to actual occurrences of mortgage fraud,” which are still rising as evidenced by a 5% increase in the number of suspicious activity reports in 2010, Denise James and Jennifer Butts of LexisNexis Risk Solutions wrote in the firm’s latest mortgage fraud report. And the Financial Crimes Enforcement Network estimates losses at more than $1.5 billion, “a total that is still likely to be grossly under-reported,” according to James and Butts. “Although origination volumes have decreased to just over $1 trillion dollars in 2010, fraud and misrepresentation continue to be a highly visible issue for mortgage lenders,” the analysts said. “Depreciated housing inventories and the threat of homeownership uncertainty by consumers have opened new doors for fraudsters to evolve their craft,” according to James, director of real estate solutions, and Butts, manager of data processing at the firm’s mortgage asset research institute. Fewer ways to identify and report fraud also contributed to lower levels last year. “We are seeing the convergence of several factors, including decreasing loan origination volumes and fewer resources available to investigate and report incidents of fraud as discovered,” Butts said. “Mortgage fraud has become more complex and harder to verify using traditional methods,” according to James. Still, as market participants grapple with the uncertainty of new rules and regulations mandated by Dodd-Frank and the establishment of the Consumer Financial Protection Bureau, they’re acutely aware of the problems associated with mortgage fraud. “Fraudsters thrive on inadequacies within lengthy loan-related processes and a lack of consistency across organizations and/or industries that help them hide their true motives,” the LexisNexis analysts said. “Technology has enabled faster loan production through automation, ease of processing, and analytics. Industry professionals have keen knowledge of those processes, which makes it much easier to manipulate protocols in place to thwart adverse activities.” James said mortgage businesses “are quickly trying to implement new procedures to detect emerging frauds while, at the same time, focusing their energies on recovering the huge financial losses of recent years.” More mortgage fraud was perpetrated in Florida last year than any other state, and homeowners can expect to see more than three times as much fraud in the Sunshine State than elsewhere in the country, according LexisNexis. New York remains second and California third in the expected amount of reported mortgage fraud and misrepresentation by origination volume. Write to Jason Philyaw.
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