Stepped-up law enforcement and increased banking scrutiny appear to be curbing the rate of mortgage fraud in some areas of the country, including California and Nevada, prompting determined schemers to take their business to other states.
Nearly a year after the FBI set up a task force in Southern California, the state has dropped from fourth place to eighth for mortgage fraud, according to a report released Monday by the Mortgage Asset Research Institute, a branch of data firm LexisNexis.
"People who were doing frauds and making a lot of money are more desperate to maintain that lifestyle," said Jennifer Butts, a co-author of the institute's report. "We have seen cases of people who are indicted for loan fraud in one state making a small change to their business name and moving to the next state."
The incidents of mortgage fraud nationwide increased 26% in 2008 from 2007, according to the report. The institute does not release raw numbers but says it weighs reports of deception in financing applications against the number of loans originated in each state.
But the geography of mortgage fraud appears to be shifting. Nevada dropped out of the top 10 after nearing the head of the list in recent years. And Rhode Island, which had not been in the top 10 for the last 11 years, has emerged as the state with the biggest fraud problem. The report was released Monday at the annual meeting of the Mortgage Bankers Assn. in Las Vegas.
About 61% of all the reported fraud was related to lies on mortgage applications. About 28% of the frauds were related to tax returns and financial statements. The remaining fraud types were related to appraisals, verifications of deposit, verifications of employment, closing costs and credit reports. In each case, a real estate professional was involved in the fraud: brokers, bankers, appraisers or others.
The 11th annual report draws on information given to the institute by about 600 lenders and insurance companies, including Fannie Mae and Freddie Mac, following investigations of frauds that were used to secure a loan. The frauds are rooted out sometimes within a week of the loan closing and sometimes several years later.
John Courson, chief executive of the Mortgage Bankers Assn. and former chairman of the California Housing Finance Agency, said regulators and prosecutors in California had worked hard in the last two years to go after fraud participants and were starting to see the results in the number of reports.
