Mortgage Fraud Rises During First Quarter

Jun 20th, 2011 @ 10:07 AM by Debbie Dragon

According to a new report releases by the Financial Crimes Enforcement Network (FinCEN) during the first quarter this year reports of mortgage fraud rose sharply, up a total of 31%. During the first three months of the year there were 25,485 new cases reported where last year during the same time period the number was much lower at 19,420.

Why the increase? With Fannie, Freddie and other mortgage investors putting pressure on banks to buy back loan losses related to fraudulent activity, banks are being forced to open their books and relook at loan documents and practices. Most of the new cases are related to loans written between the 2006-2007 time frame.

“A substantial majority of reports involved activities which occurred in 2006-2007, an indication that the industry is slowly making its way through the most problematic mortgages,” says FinCEN Director James H. Freis Jr.

FinCEN is working closely with other agencies including the Federal Trade Commission, The US Treasurer’s Office, The National Association of Attorney’s and the Federal Deposit Insurance Corporation to investigate debt scams and related fraudulent activity.

The FinCEN report showed that 273 suspicious activity reports were related to scams where either customers or a third party used fraudulent practices including bogus documents as a means to release mortgage obligations. According to the report, “Fraudulent document types included ‘Notice of Tender for Setoff,’ ‘money order receipt’ and ‘bonded promissory note.”

While most of the incidents reported were for fraudulent activity from loans written from before the mortgage crisis began, it also showed that new loans today are not immune from fraudulent allegations. According to an article on the Wall Street Journal website:

The report also noted that fraud is occurring among newer loans. For example, the report identified instances in which foreclosed properties are sold at an artificially low price to a straw buyer, who turns around to sell the property for a quick profit, the report said.

The report also looked at which metro areas had the highest incident rates. The state of California came in at the lead with 6 of the top metro areas being from the state.