FinCEN Says Old Mortgage Fraud Continues to Materialize

by devteam September 29th, 2011 | Share

When it comes to mortgage fraud, thernchickens are still coming home to roost from the housing boom of the lastrndecade.  The Financial Crimes EnforcementrnNetwork (FinCen) reported Wednesday that 81 percent of the 29,558 mortgage loanrnfraud suspicious activity reports (MLF SARS) it received in the second quarterrnof 2011 involved activities that occurred prior to 2008 and 63 percent involvedrnactivities that happened more than four years ago.  </p

Reports filed in the second quarter werernnearly double the 15,727 MLF SARs filed by financial institutions during the secondrnquarter of 2010.  The report tied that spikernto mortgage repurchase demands and special filings generated by severalrninstitutions. </p

“We’re continuing to see a large number of SARs filed on activity thatrnoccurred more than two years ago, an indication that financial institutions arernuncovering fraud as they sift through defaulted mortgages,” said FinCENrnDirector James H. Freis, Jr. “But we also continue to see indications ofrnongoing mortgage fraud activities. FinCEN’s report released today raisesrnawareness of the common scams that homeowners and lenders may encounter whenrnarranging or modifying home financing.” </p

MLF SARs represented 15 percent of all SARSrnfilings made by financial institutions during the quarter, an increase from a 9rnpercent share one year ago.  Total SARSrnfilings increased to 203,468, a 16 percent increase from the second quarter ofrn2010.</p

Eighty percent of MLF SARs filingsrnreported suspicious activity amounts under $500,000.  Only 12 percent of filings in the secondrnquarter reported loss amounts but those were also generally under $500,000.</p

California and Florida ranked first andrnsecond among the states by volume of mortgage loan fraud subjects and also on arnper capital basis.  Nevada and Illinoisrnranked third and fourth on a per capita basis and New York and Illinois were inrnthose positions when ranked by volume. </p

Filings for MLF activities that occurredrnwithin the previous year represented 11 percent of MLF SARs filings and morernthan half of those (6 percent) were for activities occurring less than 90 daysrnprior to the reporting date.  The mostrncommon reported activity was misrepresentation of borrower income, occupancyrnstatus, debts, or income, accounting for 30 percent of the most recent reportedrnactivity.  Nineteen percent of reportsrninvolved debt elimination scams, 11 percent fraud through misuse of SocialrnSecurity numbers.  Identity theft, shortrnsale fraud, and appraisal fraud each accounted for 4 to 6 percent of thernreports.</p

Debt elimination scams involved numerousrnbogus documents and payment methods that customers and third parties submittedrnto financial institutions in attempts to have their mortgage obligationsrneliminated.  Report filers describedrnseveral “payment methods” for mortgage debt elimination not seen previously includingrnfraudulent bank checks, falsely purported deposits from a Federal Reserve Bank,rnand “international Bills of Exchange.”</p

False statements and documents involvedrnmisrepresentations of income, employment, occupancy, assets, and/orrnliabilities.  Some SARS described scamsrnin which the subjects made multiple loan applications for the same propertyrneven though there had been numerous denials because of previousrnmisrepresentations.</p

While short sale fraud represented onlyrnsix percent of reports, there were many methods employed.   There were frequent attempts to short sellrnbetween related parties and short sale flips (in one case for less than halfrnthe appraised value.)  In one scam arnthird party claiming to work with the bank contacted the borrower to say thernsale was being pulled then extracted over $50,000 from the borrower to continuernthe sale.  Other attempted or actual shortrnsale scams used fraudulent letters of credit, suspicious broker price opinions,rnand fraudulent short sale approval letters.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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