MBA/MARI Report on Fraud Cites Increases in Key States

MBA (3/14/2008 ) Vazquez, Jason; Sorohan, Mike
For the second consecutive year, Florida led all states in cases of residential mortgage fraud and misrepresentation, followed closely by Nevada, according to the 10th Periodic Mortgage Fraud Case Report to MBA issued by the Mortgage Bankers Association and the Mortgage Asset Research Institute LLC, a ChoicePoint company.
The report, based on participating subscribers’ reports to MARI, found that states experiencing the highest number of residential mortgage delinquencies and foreclosures because of speculative activities also ranked highest in cases of fraud and misrepresentation against lenders.

"Current market conditions, compounded by mortgage fraud, are having a detrimental impact on our entire national economy," said MBA Chairman-Elect David Kittle, CMB, at MBA’s National Fraud Issues Conference in Chicago. "The MARI report provides critical insight for those in the real estate finance industry to better understand the factors contributing to these circumstances so that our communities and member companies are protected."

The report found that conditions in the mortgage industry for the last half of 2007 made the year “one for the record books." Overall, 2007 marked the lowest volume of mortgage loan originations since 2002, the highest number of delinquencies and foreclosures, rapid and near-complete shutdown of the non-conforming secondary market and hundreds of announced closures of mortgage originators.

“Mortgage fraud is a burgeoning threat to homeowners lenders and the community in general,” Kittle said. “The report illustrates just how quickly this problem is increasing.”

"Because fraud is persistent, it is imperative for the mortgage industry to collaborate in its efforts to combat mortgage fraud against lenders," said Merle Sharick, CMB, ChoicePoint vice president and MARI's national manager of business development. "MARI will continue its efforts to disseminate current data for use by MBA's members through our annual fraud report."

Highlights in the Mortgage Fraud Case Report include:

• In addition to Florida and Nevada, the remainder of this year's top 10 (in order): Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota. The top eight states’ rankings appear above the median number of 100 that ChoicePoint uses as its measure of severity;

• Colorado showed the greatest improvement from prior years' rankings, dropping out of the top 10 for the first time in five years;

• The most common types of fraud found in 2007 originations continue to be in the areas of employment history and claimed income; and

• The continuing unsettled state of the mortgage market as a whole does not bode well for any improvement in avoiding fraud in the coming year.

“In a constricting market today, fraud is more noticeable,” Sharick said. “We’re also seeing some impact on housing values. It puts more of an onus on everyone involved in the transaction, particularly the lender, to perform due diligence. Every relationship presents both opportunity and risk. We’ve done a good job of taking advantage of the opportunities; now we must do a better job of mitigating risk.”

ChoicePoint provides MBA members the annual case reports on mortgage fraud as well as discounted fees to participate in MARI's Mortgage Industry Data Exchange (MIDEX®) database. The MIDEX database allows mortgage lenders, insurers and agencies to exchange information about companies and professionals that have been involved in loan transactions containing alleged fraud or material misrepresentations.

A MARI Loan Fraud Alert Service (LFAS), a new industry-contributed mortgage loan process management database, enables lenders and investors to identify potential application risk, patterns of fraud and hidden relationships among parties involved in mortgage transactions. MIDEX and LFAS are key components of ChoicePoint's Identity Risk Management (IRM) solutions for the mortgage industry. ChoicePoint's IRM solutions help mitigate fraud by allowing organizations to better know their customers, employees and vendors.