Mortgage fraud continues to be an issue in newly originated loans, according to a report from the Mortgage Asset Research Institute that shows a 42 percent increase in reported incidents of fraud in loans originated during the first quarter compared to a year ago.

MARI identified Florida, California, Illinois, Maryland and Michigan as the states with the biggest mortgage fraud problems, with reports of suspected misrepresentation concentrated in urban areas. Florida accounted for about one in four loans with material misrepresentations nationwide, and the Miami metropolitan statistical area (MSA) accounted for about half of all reports submitted for properties in the state.

In California, 52 percent of the properties with misrepresentation are in the Los Angeles MSA. In Illinois, 94 percent of investigations are for properties in the Chicago MSA. In Maryland, 25 percent of reports are in the Baltimore MSA. The Detroit MSA encompasses 56 percent of all of the misrepresentation reported for Michigan.

MARI aggregates reported incidents of fraud and verified misrepresentations submitted by lenders who originate more than 80 percent of U.S. wholesale mortgages to its Mortgage Industry Data Exchange (MIDEX) database.

The most commonly identified type of suspected fraud was “general application misrepresentation,” followed by misrepresentations related to income and employment. MARI said multiple problems, such as identity theft and identity fraud, continue to be common problems in loan transactions in which fraud is suspected.

"As lenders pursue higher-quality loans for the market, the priority should be on identifying poor quality at the earliest possible point in the process — and at the lowest possible cost," MARI’s Quarterly Fraud Report concluded. "In MARI’s view, the origination and prefunding processes offer the largest and least expensive opportunities to assure funding of higher-quality loans. How a lender accepts or rejects a loan application at the front door is often all a criminal needs to see how much further he or she may push through the loan process."

MARI is a ChoicePoint company, which touts MIDEX and MARI Loan Fraud Alert Service Pro (LFAS Pro) as tools for lenders to identify potential application risk, patterns of fraud and hidden relationships among parties involved in mortgage transactions.


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