Copyright America's Community Bankers Feb 2007Fraud can affect all levels of the banking industry, and lately, it's been felt especially hard in the mortgage sector. For example, there were roughly 23,000 mortgagerelated Suspicious Activity Reports filed in fiscal year 2005, compared to 18,391 in 2004 and 9,539 in 2003, according to research from the Financial Crimes Enforcement Network.
As fraudulent behavior has increased, so has the cost in dollars. In 2005, for instance, the dollar loss from mortgage-related fraud was $1.04 billion, compared to $429 million the year before, according to research from the Federal Bureau of Investigation. The number of pending cases has also grown, from 534 in 2004 to 721 in 2005.
Some of the most popular mortgage-fraud schemes involve "flipping" a house, which refers to buying a property at a certain price, having it falsely appraised for a much higher figure, and then immediately selling at the higher number and pocketing the difference. This type of property flip results in a substantial loss for the bank holding the mortgage. Fraudsters have also come up with a way to trick borrowers into signing several copies of the same mortgage document. The loan is then sold to several different investors, and the lender can pocket the proceeds.
Mortgage fraud is most likely to happen on an application, according to the Mortgage Industry Data Exchange database from the Mortgage Asset Research Institute, Inc. For the last lOyears, mortgage professionals have been submitting all instances of suspected fraud to the database, and in 2005,59 percent of the fraud occurred on the applicatioa Other leading fraud types include tax and financial statements (22 percent), verification of deposit ( 16 percent), appraisals/valuations {14 percent), verification of employment ( B percent), escrow/closing (7 percent), and credit reports (4 percent).
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