The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) said mortgage loan fraud suspicious activity reports (MLF SARs) almost doubled in the second quarter of 2011 compared with the second quarter of 2010 as 63% of all filings related to activities that occurred four or more years ago, coinciding with the height of the real estate bubble. FinCEN Director James Freis said in a press release that the dated reports indicate that banks “are uncovering fraud as they sift through defaulted mortgages.”
FinCEN’s Mortgage Loan Fraud Update said that financial institutions filed 29,558 MLF SARs in the second quarter of 2011, up from 15,727 in the same quarter of 2010—an 88% increase. The report is available at tinyurl.com/3eqwjct.
The report said the spike is directly attributable to mortgage repurchase demands and special filings generated by several institutions. Omitting these particular submissions, the report said MLF SARs would have declined 3% year over year.
A large majority of the MLF SARs examined in the second quarter involved mortgages closed during the height of the real estate bubble. In the second quarter, 87% of reported activities occurred more than two years prior to filing, compared with 73% in the prior-year period. The largest change came in activities that occurred four or more years prior to a SAR filing, which were 63% of reports in the second quarter compared with only 18% in the prior-year period.
“We’re continuing to see a large number of SARs filed on activity that occurred more than two years ago, an indication that financial institutions are uncovering fraud as they sift through defaulted mortgages,” Freis said in the press release. “But we also continue to see indications of ongoing mortgage fraud activities. FinCEN’s report … raises awareness of the common scams that homeowners and lenders may encounter when arranging or modifying home financing.”
Only 6% of MLF SARs in the second quarter involved activities that occurred within 90 days of the filing. Among current reports, the most common types of suspicious activities were misrepresenting income, occupancy, or debts and assets (30%); debt elimination scams (19%); scams involving the fraudulent use of Social Security numbers (11%); short-sale fraud (6%); identity theft (5%); and appraisal fraud (4%).
FinCEN issued a proposal to mandate that almost all FinCEN reports required under the Bank Secrecy Act (BSA) be filed electronically as of June 30, 2012. Currently, about 85% of FinCEN reports are filed electronically through its free BSA E-Filing system.
FinCEN expanded the system in August to support individuals filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) (see prior JofA coverage, “FinCEN Creates FBAR E-Filing System”). Those reports would be included in the e-filing mandate. The proposal’s one exception from the mandate would be FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR), which is most often completed by individuals upon crossing the border into the United States.
Comments on the proposal were due Nov. 15.
The proposal says the requirement will significantly enhance the quality of the agency’s electronic data, improve its analytic capabilities in supporting law enforcement and significantly reduce costs to the U.S. government and taxpayers. FinCEN said that e-filing allows it to provide information on money laundering and terrorist financing investigations to law enforcement in a searchable format in two days, rather than two weeks, for example, if filed on paper.
FinCEN has provided technical specifications (see tinyurl.com/65rtdrg) to assist programmers in preparing their systems to e-file future large-batch filings of suspicious activity reports (SARs) and currency transaction reports (CTRs) as part of its overall technology improvement efforts and its development of new universal reports. FinCEN said its new SAR and CTR reports, which are expected to be available this winter, will replace all previous industry-specific forms.
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