The FBI said it investigated 818 mortgage fraud cases in 2006, winning 204 convictions and collecting $389 million in restitution and $231 million in fines. The number of cases investigated was up sharply from 436 in 2003, but other statistics suggest that the FBI investigates only a small percentage of mortgage fraud cases and is not keeping pace with the growth in suspected fraud. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in November
An FBI spokesman did not immediately return a call from Inman News. But the bureau acknowledged in its annual Financial Crimes Report to the Public that “the true level of mortgage fraud is largely unknown.”
Although banks are required to file suspicious activity reports, “A significant portion of the mortgage industry is void of any mandatory fraud reporting,” the FBI report noted. In addition, as initial mortgage products are repackaged and sold on secondary markets, the sale of the mortgages in many cases conceals or distorts the fraud, causing it not to be reported.
The FBI said its analysis of SARs revealed that the western U.S. led the nation with 35.9 percent of mortgage fraud-related SARs filed during the fiscal year ending in September. The central, southeast and northeast regions had 24.7 percent, 22.6 percent and 16.9 percent, respectively, of mortgage fraud-related SAR filings.
But the central region had the highest percentage of pending cases in 2006, or 33.3 percent of the total. The west, southeast and northeast had 26.7 percent, 27.2 percent and 12.8 percent of pending cases, respectively. The FBI said those numbers are consistent with reports lenders file with the Mortgage Asset Research Institute (MARI), which indicated that five of the top 10 states for mortgage fraud in 2006 were located in the central region.
According to FinCEN, one reason for the increase in the number of mortgage-related SARs is the increase in the number of home loans. The number of residential home loans grew by 153 percent between 1997 and 2003. The increase in loan fraud as a percentage of all SARs has more than doubled, from 2.1 percent in 1997 to 4.9 percent in 2005.
FinCEN said 66 percent of the SARs it analyzed included false statements or misrepresentations including altered bank statements, altered or fraudulent earnings documentation such as W-2s and income tax returns, fraudulent letters of credit, altered credit scores, and invalid Social Security numbers.
Appraisal fraud and fraudulent property flipping were involved in 11 percent of the reports, and nearly half of those reports described suspected collusion by mortgage brokers, appraisers, borrowers, or real estate agents or brokers.
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