LexisNexis (MARI) Releases 14th Annual Mortgage Fraud Report

Allison Tussey —  July 12, 2012 — Leave a comment

With still-high delinquency and foreclosure rates, little economic progress in depressed markets, and unscrupulous individuals taking advantage of the financially disenfranchised, 2011 was a bleak year for the mortgage industry. As industry insiders and economic analysts hope for noticeable recovery, 2011’s mortgage loan originations were at their lowest since 2001.

However, the business of home buying continues, albeit slowly and with considerable caution. Industry participants continue to try and manage through this industry volatility, while recognizing heightened oversight and consumer uncertainty.

Increased legislative and regulatory mandates like those from the Office of the Comptroller of the Currency (OCC) (a focus on 2009-10 closed loans and credentialing), the 2010 Dodd-Frank Act (overarching regulation across the financial services industry), the 2008 Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act (originator registration on National Mortgage License System & Registry (NMLS/R)), the Real Estate Settlement Procedures Act (RESPA) (new required disclosures and closing procedures), and FHA Certified Brokers (HUD transitions third party originator risk to lenders and banks) have created a tighter day-to-day reality for professionals involved in all aspects of the mortgage transaction. Such mandates, along with the newly vigilant loan industry, appear to be making a difference in one arena, as a decreased number of loan origination fraud and misrepresentation cases are being reported. However, along with these decreases are increases in potential distressed homeowner fraud and collusion schemes.

This is the LexisNexis 14th Annual Mortgage Fraud Report, formerly known as the MARI Fraud Report. These annual reports examine the current composition of residential mortgage fraud and misrepresentation involving industry professionals in the United States. (See Appendix I at the end of this report for information about the methods used to collect data on mortgage fraud.) In addition, this year we are including statistics that reveal patterns of potential mortgage industry collusion.

LexisNexis’ examination of 2011 data identified that:

– According to the FBI, a total of 93,508 mortgage-related SARS were collected in FY 2011, up almost 33 percent from FY 2010.

– For loans originated in 2011, Florida ranks third on the Mortgage Fraud Index (MFI) with an MFI of 227″”slightly over two times the rate of reported fraud and misrepresentation by industry professionals that would be expected based on the proportion of loans originated in Florida. However, Florida’s Origination MFI is the state’s lowest in the past five years.

– Five states””Florida, Michigan, California, Illinois and New York””occupy space in top ten lists for incidents of reported industry fraud and/or misrepresentation for both 2011 investigations and 2011 originations.

Mandates, along with the newly vigilant loan industry, appear to be making a difference in one arena, as a decreased number of loan origination fraud and misrepresentation cases are being reported.

However, along with these decreases are increases in potential distressed homeowner fraud and collusion schemes.

– The top Metropolitan Statistical Area (MSA) for reported loans originated in 2011 is Los Angeles-Riverside-Orange County, California. Sixteen percent of all reports received included properties in this MSA.

– Reports for loans originated in 2011 have significantly fewer cases of Appraisal fraud and misrepresentation than in previous years. At 17 percent in 2011, this type of misrepresentation is down from a high of 34 percent in 2009.

– The highest categories for all reported 2011 investigations are Application and Appraisal fraud and misrepresentation. The highest categories for reported 2011 originations are Application and Verification of Deposit (and other bank-related documentation) fraud and misrepresentation.

– According to the incident data from MIDEX submissions, there is an increase in reported incidents of potential collusion involving multiple professionals.

– Six states””Alabama, New York, Kentucky, Pennsylvania, Iowa and New Jersey””rank in two different categories on the LexisNexis Collusion Indicator Index (CII) as areas with high levels of potential non-arm’s length collusion activity.

The body of this report presents the data and analysis supporting the findings cited above. The information contained in this report is meant to provide insights into current mortgage market activities.

Data and Information Sources Used in This Case Report

For over two decades, major mortgage lenders, agencies and insurers have been submitting information describing incidents of subscriber-verified fraud and material misrepresentation to an industry-contributed database, known as MIDEX (Mortgage Industry Data Exchange), in order to share adverse experiences involving professionals operating within the mortgage industry. Contributing subscribers use information services derived from  the MIDEX database as a risk management tool to protect against mortgage fraud perpetrated by industry professionals. MIDEX enables subscribers to perform due diligence checks on mortgage professionals and companies as part of their business relationship credentialing process. LexisNexis utilizes MIDEX submissions to develop representative statistics on a wide range of mortgage fraud and misrepresentation characteristics. Findings from this analysis are presented in annual Case Reports to provide key insight into mortgage fraud trends, as reported by the industry.

In addition to MIDEX incident data, the report utilizes Home Mortgage Disclosure Act (HMDA) data sourced by the Mortgage Bankers Association (MBA), a key component used for calculating a state’s Mortgage Fraud Index (MFI) value. Please refer to Appendix II for information on the MFI and its computation.

According to the incident data from MIDEX submissions, there is an increase in reported incidents of potential collusion involving multiple  professionals.

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Allison Tussey

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