Sharp increases in foreclosed homes in 2008 provided a comfortable environment for mortgage fraud to thrive, according to a report released by the U.S. Federal Bureau of Investigation this week.
The report said that mortgage lenders lost over $1.4 billion in 2008 to mortgage fraud and will lose even more this year.
The FBI said that 63,713 mortgage fraud cases were reported by various financial institutions in 2008.
Based on mortgage fraud reports filed as of March, the FBI predicts that over 70,000 mortgage fraud cases will be filed in 2009. The report also said that fraudsters included mortgage lenders, brokers, appraisers, accountants, underwriters and realtors.
The study is based on records from the FBI, other law enforcement agencies, mortgage companies, open-source databases and other government agencies. Some of the sources are the Financial Crimes Enforcement Network, Mortgage Bankers Association and Mortgage Asset Research Institute.
Suspicious activity reports (SAR) on mortgage fraud increased to 63,713 in 2008, an increase of 36 percent compared to the 46,717 total SAR filings in 2007. FBI said the exact dollar value of losses due to home loan fraud is not known, but the value of around 63 percent of pending FBI home loan fraud cases in 2008 surpassed $1 million.
Mortgage industry experts contend that a direct correlation exists between mortgage fraud and the pace of foreclosed homes. The downward slide of the 2008 housing market was accompanied by declines in home loan originations, increases in home loan defaults and increases in foreclosed homes.
FBI analysts said mortgage fraud thrived in a housing market characterized by Alt-A loans, option adjustable-rate mortgage loans, slow pace of home sales, floods of foreclosed homes and growth of all types of housing inventories.
The FBI report also said that the states with the highest number of mortgage fraud cases in 2008 were Florida, California, Illinois, Georgia, Arizona, Michigan, Texas, Missouri, New York, New Jersey, Colorado, Ohio, Nevada, Rhode Island, Minnesota, Pennsylvania, Massachusetts, Virginia and the Washington, D.C. area.
In 2008, the states entering the fraud-battered list for the first time were Massachusetts, Rhode Island and Pennsylvania and Washington, D.C. area. The states with reduced number of mortgage fraud cases were Indiana, Utah, Connecticut and Tennessee.
Mortgage fraud schemes include property flipping, condo conversion, builder bailouts and credit enhancements.
Furthermore, the FBI report said that if current intervention programs are not able to significantly cut down foreclosed homes, mortgage fraud cases will continue to increase.
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