Mortgage Asset Research Institute Releases 12th Periodic Mortgage Fraud Case Report

Allison Tussey —  April 28, 2010 — 2 Comments

MARI’s 12th Periodic Mortgage Fraud Case Report – Executive Summary – reports that “fraud continues to be a pervasive issue, growing and escalating in complexity. The market is attempting to recover from devastating financial losses and reputational harm due to the lack of controls, and denial and greed that enabled a fallacy of flourishing profits during the mortgage industry boom years. In 2009, we saw the beginning of a laser-focused effort to realign this industry back to the basics of sensible and accountable business practices. The findings throughout this report qualify the need for greater visibility into industry processes, professionals and consumers. Incidents reported by subscribers to LexisNexis® Mortgage Asset Research Institute reflect verified experiences of unscrupulous activities perpetrated by industry professionals who may or may not have involved complicit consumers. The bad news is that because of its adaptability, fraud can never be completely eradicated-but the good news is that, using industry-submitted information like that used to generate this report and proper due diligence standards, it can be proactively defeated.

As this report will indicate, reported mortgage fraud and misrepresentation increased 7 percent from 2008 to 2009. Though a smaller increase than in recent year-to-year comparisons, this increase over 2008’s record-setting submission volume remains a marker of strong reporting activity. The market experienced a meltdown, housing inventories are at an all-time high and it is next to impossible to obtain credit; so why is reported fraud and misrepresentation still increasing? There are various reasons for the increase, including new opportunities to take advantage of consumers, maintenance of lifestyles obtained during the boom period, consumers who are desperate for the American dream of homeownership, and the need for new, creative methods of moving illicit funds. How is fraud still being facilitated? Technology has provided fraudsters with the ability to access information, conduct criminal activities and remain anonymous via the internet, and manipulate processes that rely on the need for expediency. Although technology is an enabler of fraud perpetration, for the scammer there must be a system to beat and/or a victim to manipulate. Fraudsters are opportunistic and often prey upon the vulnerable within society. Systems and processes that can be beaten are the easiest targets and are often selected. For example, 2009 saw record foreclosures in several major metropolitan areas, a trend which led to the emergence of several different types of foreclosure rescue scams. In these scenarios, vulnerable homeowners in danger of losing their houses are being taken advantage of by fraudsters ahead of the fraud curve. They know that it will take time for the industry to catch up. This slow-moving reactive lag time is what must change.

In 2009 and beyond, the industry-at-large has been forced to succumb to constant change in what is considered acceptable business practices. Many lenders have adapted and adjusted their methods of verifying the information presented to them for varying consumer products provided by their organization; however, some have not and continue to remain seemingly unresponsive to change. Driven primarily by legislation and influential secondary market participants, technology vendors are also under tremendous pressure to maintain parity with these constant changes. The government, responding to and trying to force regulated responsiveness, is under the same-some would say greater-pressure to generate measurable results quickly. Congress introduced significant legislation and amendments to existing mandates in an effort to push the onus of responsibility down to the financial community or those closest to the consumer. This report will identify employment and income misrepresentation as high on the list of reported incidents for 2009. Recent relevant legislation includes amendments to the Truth in Lending Act (TILA)-one in particular focuses on the consumer’s ability to repay a debt when the debt is considered high priced or nonprime. Although the legislation is somewhat ambiguous, as it does not specify the type of verification and by whom the verification should be sourced, its purpose is valid. Lenders seeking a defense against falsified employment, income, and other loan file documentation should leverage third party sources with no vested interest in the financial transaction. Unfortunately (and rather unbelievably), there are some lenders who continue to rely upon stated information and borrower sourced documentation. The standard for lending due diligence must be elevated. The current distractions facing lenders with regard to loss mitigation and righting past wrongs is ripening the opportunities for and complexities of fraud in other areas. Lenders are more aware of the adverse activities that contributed to the current state of the industry. Unfortunately, fraudsters are also paying attention and evolving their practices to be more complex and difficult to detect. New frauds emerge daily-the industry must react in real time.
This is the twelfth annual report by LexisNexis® Mortgage Asset Research Institute. These annual reports examine the current composition of residential mortgage fraud and misrepresentation in the United States. (See Appendix I at the end of this report for information about the Mortgage Asset Research Institute and the methods it uses to collect data on mortgage fraud.) This year’s report will continue that trend, but will also explore the impact of mortgage fraud on the current mortgage market environment.

The highlights of this annual report include:
• With close to three times the expected amount of reported mortgage fraud and misrepresentation for its origination volume, Florida is ranked first in the country for reported mortgage fraud and misrepresentation.
• New states to enter the top ten include Arizona, New Jersey,
and Virginia.
• The most noticeable increase in reported fraud and misrepresentation type for loans originated during the 2009 year involves the appraisal.

The body of this report presents the data and reasoning behind the conclusions cited above.”

Access the MARI report here.

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2 responses to Mortgage Asset Research Institute Releases 12th Periodic Mortgage Fraud Case Report

  1. While simple to understand in theory, it is important to know how reverse mortgages work. The reverse mortgage loan product got its name due to the fact that instead of making mortgage payments, the lender actually pays the borrower creating a kind of inverse relationship compared to the traditional mortgage product. The source of funds for the money received is the equity stored in your home.

  2. the mortgage rate is very important.Your FICO score is computed and tracked by the three major credit bureaus: Trans Union, Equifax and Experian. Your score is updated quarterly and is negatively affected by such things as: late or missed loan payments, filing for bankruptcy, having too much debt compared to your income, and credit card balances being too close to their limits.

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