Mortgage Defaults Drive 88% Jump in Suspected Fraud

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, released on Wednesday, said that financial institutions filed 29,558 MLF SARs in the second quarter of 2011, up from 15,727 MLF SARs in the same quarter of 2010—an 88% increase.
 
The report said the spike in second quarter MLF SARs 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 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%).

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