Mortgage Fraud Down 25% Overall, Scheming Varies by State

While mortgage fraud levels reported an overall decrease in 2012 from the previous year, a new report reveals that some states show increased levels of collusion activity.

In 2012, approximately 69,000 Suspicious Activity Reports (SARs) specific to mortgage loan fraud were received—a decrease of 25% from 2011, according to LexisNexis Risk Solutions’ 15th Annual Mortgage Fraud Report

But while the total volume of mortgage fraud might have declined in 2012, the ratio of all reports having some type of application misrepresentation or fraud increased.

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Analysis of all loans investigated in 2012 and submitted to the LexisNexis Mortgage Industry Data Exchange (MIDEX) shows a five-year high of 69% of all reports received having some type of application misrepresentation or fraud. 

Similarly, when focusing on just those loans originated in 2012, 61% report application misrepresentation and/or fraud—up from 49% of loans originated in 2011 and 43% in 2010. 

For the first time in the study, a nationwide aggregation of available LexisNexis property data was used to determine states that are most likely suffering from the largest percentage of properties in default. 

Florida and Nevada experienced the most dramatic decreases in default properties, even though they were ranked first and fourth, respectively, on the 2012 list.

New Jersey was the only state in the study to make it on all three top-10 lists for mortgage fraud and misrepresentation, according to MIDEX. 

Additionally, eight states ranked highly on both the study’s Collusion Indicator Indices as areas with high percentages of potential “non-arm’s length” transaction activity.

“This year’s study suggests that the more shared problematic economic indicators a state has, the greater its financial challenges will be in the coming years,” said Tom Brown, senior vice president of financial services at LexisNexis. “With Consumer Financial Protection Bureau mortgage regulations going into effect in January 2014, and demanding new rules for quality loans, it will be interesting to see what impact this has on overall mortgage defaults.”

Written by Jason Oliva

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