The number of suspected cases of mortgage fraud reported by lenders was up 31 percent during the first quarter from a year ago, but most of those reports involved questionable activity on loans originated years ago.
Lenders are conducing additional reviews after receiving demands from Fannie Mae, Freddie Mac and others that they repurchase poorly performing mortgages, the Financial Crimes Enforcement Network (FinCEN) said in releasing its latest report on suspicious activity reports filed by lenders.
Of the 24,485 suspected cases of mortgage fraud reported by lenders, 79 percent involved activities that occurred more than 3 years ago. Six of the top 10 metro areas for mortgage fraud were in California.
A "substantial majority" of the reports involved activities that occurred in 2006-07, an indication that the industry is slowly making its way through the most problematic mortgages, FinCEN Director James H. Freis Jr. said in a statement. Which is not to say that fraud is not a problem on more recently originated loans.
Top 20 metros for mortgage fraud
1. San Jose-Sunnyvale-Santa Clara, Calif.
2. San Francisco-Oakland-Fremont, Calif.
3. Lost Angeles-Long Beach-Santa Ana, Calif.
4. Riverside-San Bernardino-Ontario, Calif.
5. Sacramento-Arden-Arcade-Roseville, Calif.
6. Miami-Fort Lauderdale-Pompano Beach, Fla.
7. San Diego-Carlsbad-San Marcos, Calif.
8. Las Vegas-Paradise, Nev.
9. Atlanta-Sandy Springs-Marietta, Ga.
10. Salt Lake City, Utah
11. Chicago-Naperville-Joliet, Ill.
12. Washington, D.C.-Arlington-Alexandria, Va.-Md.-W.Va.
13. Tampa-St. Petersburg-Clearwater, Fla.
14. New York-Northern N.J.-Long Island, N.Y.-N.J.-Pa.
15. Orlando-Kissimmee, Fla.
16. St. Louis, Mo.-Ill.
17. Seattle-Tacoma-Bellevue, Wash.
18. Phoenix-Mesa-Scottsdale, Ariz.
19. Richmond, Va.
20. Denver-Aurora-Broomfield, Colo.
Rankings based on first-quarter 2011 per capita. Source: FinCEN.
FinCEN said a review of nearly 70 suspicious activity reports filed less than 90 days after suspicious activity was detected turned up evidence of income falsification, property "flopping," and loan modification and foreclosure rescue scams.
Among those reports, FinCEN found evidence of income misrepresentation on about a dozen. Unemployed or underemployed subjects and small business owners in some cases falsified income records such as tax returns, W-2 forms, and pay stubs to qualify for new mortgage loans or loan modifications, including government-sponsored modifications.
Property flopping often involves unethical real estate agents who withhold offers on a short-sale property from lenders in order to help an investor purchase the home at a lower price. The home can then quickly be resold to a buyer who made a higher offer.
"In one (report), a former bank employee helped facilitate numerous short sales, which the buyer flipped within days of the short sale for profits ranging from 15 to 300 percent," the finCEN report said. "In another, a filer described a ‘short sale flop’ that would have yielded a nearly 100 percent gain, but the filer stopped the sale upon discovering the property listed with a Realtor for nearly double the short-sale price."
Other noteworthy activities found in very recent reports included a case in which a Realtor referred a potential homebuyer to two "loan officers" who supposedly worked for a lender in a nonbranch location. The buyer was told these "loan officers" could work around his credit problems, but not if he asked for them by name at the bank branch. The lender reported the incident as "predatory lending."
In another case, a granddaughter with power of attorney signed an agreement to sell her grandmother’s home to a financial partner for far less than the home was worth. The lender reported the incident as "elder financial abuse."