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Reports of mortgage fraud in the US dropped in 2010 for the first time in several years, according to a recent report, which implies that either tightened measures and the state of the residential property market are making it more difficult to carry out fraud — or that fraudsters are becoming more sophisticated and going unnoticed.
Overall, the number of reported fraud incidents fell 41 percent from 2009 to 2010, according to a report released by LexisNexis Mortgage Asset Research Institute.
Nonetheless, fraud still cost the residential market over US$1.5 billion in 2010, the Treasury Department projected. The Mortgage Asset Research Institute’s report also concluded that losses are possibly much higher than the Treasury’s estimates.
“The industry is plagued with vulnerabilities within the origination process that expose lenders to risk.”
Florida, which has topped the fraud index of the Mortgage Asset Research Institute for the last five years, remains the top state for mortgage scams. The expected rate of fraud for the number of loans it originates has also tripled.
But much like the nation, Florida has witnessed a decrease in fraud by around a third since its 2008 peak.
Of the top 10 states on the list, only two — no. 6 Michigan and no. 10 Illinois — have recorded decreases. New York and California witnessed fraud increase, placing them in the second and third spot, respectively.
The most common method of fraud involves home loan applications, where borrowers fake their identity or financial condition. According to the report, such fraud fell to 39 percent in 2010, from 68 percent in 2006.
The second most common type of fraud is in the valuation or appraisal of the property itself. Known as flopping, this technique involves a real estate agent or broker valuing a property below its actual value. The broker then sells the property to the real estate agent, who would have already contacted a buyer who will acquire it at a much higher price. The lender and agent then divide the profit.
Appraisal fraud, such as flopping, has been gradually increasing and represented a third of all mortgage fraud recorded in 2010.
But generally, reported fraud has dropped, which could be attributed to the industry’s intensive efforts to reduce fraud.
“Lenders are stepping up their efforts to learn from their mistakes, identify incidents that made them vulnerable to fraud, and develop programmes that help to protect their organizations from further adverse activities,” the report said.
“But fraud is and will always be a crime of opportunity, especially in times of desperation.”
To contact the journalist, you may send your message to editor@propertyguru.com.sg