Reports of Suspected Fraud Increase 31% in 2011

The number of submissions for mortgage loan fraud suspicious activity reports (MLF SARs) for the full year of 2011 increased by 31 percent, or to 92,028, according to a ""report"":http://www.fincen.gov/news_room/rp/files/MLF_Update_Q4_2011_508.pdf released by the ""Financial Crimes Enforcement Network"":http://www.fincen.gov/ (FinCEN). In 2010, 70,472 reports were submitted.

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Over the past several years, MLF SAR filings have been increasing on a yearly basis, with only 4,695 filings in 2001. In 2005, the number of filings made an upward climb to 25,988, then more than doubled 2009, when there were 67,507 filings.

According to FinCEN, the upward trend can mostly be attributed to mortgage repurchase demands on banks since repurchase demands prompted the review of mortgage loan origination and refinancing documents, which is where filers discovered fraud that was then reported on SARs.

While there is a continuous increase on a yearly basis, for the 2011 fourth quarter, MLF SARs decreased 9 percent compared to the same quarter a year ago when financial institutions submitted 17,050 reports. The drop is the first time since the fourth quarter of 2010, but FinCEN stated it's too early to call the fourth quarter decrease a trend.

According to FinCEN, the report does suggest significant improvement in ""mortgage lending due diligence since the height of the housing bubble.""

For example, 40 percent of MLF SAR narratives - where filers explain why an activity appears suspicious - indicated instances where institutions rejected a loan application, short sale request, or debt elimination attempt due to suspicions of fraud. In the majority of income fraud-related SARs, filers rejected a loan application after finding a misrepresentation during the underwriting process.

In 2011, 84 percent of reported activities occurred more than 2 years before the filing, and during the fourth quarter for the same year, 80 percent of reported activities occurred more than 2 years before the filing.

The starting dates for MLF SARs were believed to have begun mostly in 2006 and 2007, with 117,371 and 121,165, respectively, starting during those years, according to those who filed the reports. A graph from FinCEN shows a steep drop in start dates before and after 2006 and 2007, with 41,069 start dates in 2008 and 10,097 in 2011.

In the fourth quarter and full 2011 year, more than 80 percent of MLF SARs involved suspicious activity amounts under $500,000.

California had the highest number of MLF subjects per capita for both the fourth quarter and full year. For 2011, California was followed in the per capita rankings by Hawaii, Florida, Nevada, and Washington D.C., which was counted as a state for the report.

In just the fourth quarter of 2011, the states that followed California were Florida, Hawaii, Illinois, and Nevada.

For the full year of 2011, states with the highest volume of MLF SAR subjects were California, Florida, New York, Illinois, and Texas.

The counties with the highest MLF SAR subjects per capita for 2011 were Santa Clara County, California; Orange County, California; Riverside County, California; Broward County, Florida; and, Los Angeles. For the fourth quarter, the top five per capita were Hillsborough, Florida; Gwinnett, Georgia; San Diego, California, Santa Clara, California, and Los Angeles.

Metropolitan areas with the highest MLF SAR subjects per capita for the full 2011 year were in California or Florida, with San Jose coming in first, followed by Los Angeles, Miami, Riverside, and San Diego. During the fourth quarter, the metro areas with the highest subjects per capita were also in California and Florida, leading with San Diego, then San Jose, Los Angeles, Tampa, and then Orlando.

During the 2011 fourth quarter, Los Angeles ranked highest based on the total number of MLF subjects, followed by New York, Chicago, Miami, and Atlanta. For the full 2011 year, the top four fourth quarter metros were the same, with Riverside taking the fifth spot.