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New report shows decrease of reported mortgage fraud cases

According to a LexisNexis Mortgage Asset Research Institute, the number of residential mortgage fraud incidents reported by institutions in the home financing industry decreased 41 percent between 2009 and 2010. That is the first decrease in five years.

Mortgage fraud encompasses various criminal activities at the core of which is a person's intent to materially misrepresent or omit information on an application for a mortgage in order to obtain the loan or to obtain a larger loan than the lender would be willing to make if the information was not omitted or misrepresented. Mortgage fraud is often prosecuted in federal courts as bank fraud, wire fraud, mail fraud or money laundering.

While the numbers may sound great, the Institute said that the decrease is likely due to the fact that fewer new homes are being built. In fact, the true number of fraud cases likely increased, and is still on the rise. According to the Financial Crimes Enforcement Network, there was an annual increase of almost 5 percent last year, at 70,472 cases with losses of over $1.5 billion.

Other factors correlated to the fall in reported mortgage fraud cases are a decrease in extension of home loans after banks have implemented stricter lending standards in response to the housing market's failure, as well as a lack of resources to investigate and report incidents of fraud.

According to Denise James, co-author of the LexisNexis report, "Even though we have depressed origination volumes, we still have the same level of fraud reports coming in to us as we did at the time of the boom. If fraud was really declining, the number of reports should be correlating with the significant and sharp decline of origination volumes."

Florida, of all the states, had the highest rate of reported mortgage fraud cases, followed by New York, then California, New Jersey, Maryland, Michigan, Virginia, Ohio, Colorado, then Illinois.

The study's conclusions were based on mortgage fraud data provided by mortgage brokers, financial companies, mortgage insurers, Fannie Mae, Freddie Mac and other government-operated financial institutions.

Source: Businessweek, "Reported incidents of mortgage fraud fell in 2010," Associated Press, 9 May 2011.

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