Housing Market Primed for Mortgage Fraud

May 14, 2008— -- Subprime loans, which dramatically increased after 2003, are a considerable factor influencing mortgage fraud due to their higher failure rate, according to the FBI's 2007 mortgage fraud report.

"Subprime mortgage issues remain a key factor in influencing mortgage fraud directly and indirectly ... during 2007 there were more than 2.2 million foreclosure filings reported on approximately 1.29 million properties nationally, up 75 percent from 2006," the report said.

According to the FBI report, mortgage fraud is most concentrated in the north central region of the United States, and notes the top 10 mortgage fraud states include Florida, Georgia, Michigan, California, Illinois, Ohio, Texas, New York, Colorado, and Minnesota.

"Mortgage fraud continues to be an escalating problem in the United States. Although no central repository collects all mortgage fraud complaints, Suspicious Activity Reports (SARs) from financial institutions indicated an increase in mortgage fraud reporting," the report noted.

The FBI reviews SARs it receives from the Treasury Department's Financial Crimes Enforcement Network (FINCEN) to look for indicators pointing to potential mortgage fraud.

The number of suspicious reports has grown in recent years. In 2003, the FBI received about 7,000 reports. According to the bureau, in 2007 they received 46,717 reports. According to an FBI official, for the first half of fiscal year 2008, the bureau has received 33,359 reports.

To cope with mortgage fraud, the FBI has set up 35 mortgage fraud task forces across the country. "The downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes suitable to a down market," the report said.

The report acknowledged some scams that have become more prevalent in recent years, besides illegal property flipping and using straw buyers who fill out false loan applications:

In March, ABC News reported on mortgage rescue scams, which have become more prevalent. In the schemes, predatory con artists promise financially strapped homeowners the ability to refinance mortgages, but it's a ruse. They charge a fee and then disappear, leaving homeowners facing foreclosure and with even less money.