Reported incidents of mortgage fraud and misrepresentation by professionals in the residential mortgage industry continue to climb. According to a
report released Monday by the LexisNexis Mortgage Asset Research Institute (MARI), such cases increased 7 percent for the 2009 fiscal year when compared to the previous 12 months.
The pace has slowed since the 2007-2008 increase of 26 percent thanks to improvements in industry reporting and policing, but MARI says the continued increase means fraudsters are taking advantage of desperate and confused homeowners during a time of crisis. Foreclosure rescue and loan modification scams are on the rise, and now the company is seeing a significant increase in short sale scams.
""Lenders are facing hurdles with compliance, loss mitigation, and staving off additional financial losses due to poor loan performance,"" said Denise James, LexisNexis' director of real estate solutions and co-author of the report. ""This is not to say that mortgage fraud is going away; it is still a serious problem, and new trends continue to emerge.""
James says it remains critical for those in the mortgage industry to reassess their processes, share information and fraud incidence reports, and ready themselves for more complex schemes in order to continue the fight against mortgage fraud.
The top fraud incident type in 2009 Ã¢â‚¬" representing 59 percent of all reported fraud types Ã¢â‚¬" was application misrepresentation. This is the sixth year in a row it has topped the list.
In second place were frauds related to appraisal and valuation misrepresentation, an area experts say is particularly vulnerable in short sale transactions Property valuation fraud increased 11 percent from 2008 to 2009, representing 33 percent of all reported incidences last year. MARI says this is the most notable increase in reported fraud types in 2009.
Additional documented fraud types included verifications of deposit, verifications of employment, escrow or closing costs, and credit reports.
""The information contained in LexisNexis Mortgage Asset Research Institute's 2009 Report serves as yet another wakeup call for the industry on the status and continued presence of mortgage fraud,"" said Darius Bozorgi, president and CEO of Veros, an analytics and risk mitigation firm in California. ""Fraud increases risk exponentially, and the industry must meet this threat head on using all available intelligence and tools.""
According to MARI's study, Florida has moved back into first place among the top states for mortgage fraud and misrepresentation. The company's analysis shows that Florida has close to three times the expected amount of reported mortgage fraud and misrepresentation for its origination volume.
New York moved into second place in terms of the highest mortgage fraud rates, followed by California. At No. 4, Arizona claimed a spot among the top five for the first time in the history of MARI's study.
Michigan had the fifth highest mortgage fraud rate. Rounding out MARI's top ten list were Maryland, New Jersey, Georgia, Illinois, and Virginia.
Although eight of the top 10 states for mortgage fraud overall are in the eastern half of the country, MARI found that the states with the highest concentration of appraisal fraud nationwide are all Midwestern states - Ohio, Illinois, and Michigan.