Fraud Seen as a Driver in Wave of Foreclosures

Wall Street Journal (12/21/07) P. A1; Corkery, Michael
Experts say rampant mortgage fraud is largely responsible for rising foreclosure rates, with 50 percent of foreclosures in some markets tied to unscrupulous practices. The Federal Bureau of Investigation reports an increase in the share of agents and analysts handling mortgage fraud cases to 28 percent from 7 percent over the past four years and a jump in active mortgage fraud cases to 1,210 from 436 over the same time span. Meanwhile, the number of Suspicious Activity Reports submitted to the Treasury Department's Financial Crimes Enforcement Network by lenders soared almost 700 percent from 2000 through last year. Many of the fraud cases involve borrowers lying about their income and assets; but some are sophisticated schemes involving borrowers, mortgage brokers, appraisers and shell companies used to distribute the mortgage proceeds. Observers suggest the mortgage industry is at least partly to blame for allowing borrowers to obtain loans simply by stating their incomes; these products are condemned as "liar's loans" by the Mortgage Asset Research Institute. Prieston Group Chairman Arthur Prieston predicts fraud losses for 2006 to rise 100 percent from the prior year to a record $4.5 billion.