The crash of the once-soaring housing market is creating prime conditions for scams, says the Federal Bureau of Investigation, and its 2007 mortgage fraud report proves it.
Last year, banks and other financial institutions filed more than 46,000 reports about suspicious mortgage transactions, a 31 percent jump compared to 2006. Only 7 percent of the reports contained estimated loss figures, however, for a total of more than $813 million, suggesting that the true cost of mortgage scams and schemes is significantly higher.
What caused this rise in fraud? Speed and greed.
“A report by the Mortgage Asset Research Institute indicates that two factors pressured the industry into non-traditional lending practices that contributed to fraud. The first includes the persistent drive of mortgage lenders to hasten the mortgage loan process, and the second involves the escalation of home prices of recent years. … These recent events likely resulted in an increase in mortgage fraud as higher housing prices tempted borrowers to exaggerate income and assets to qualify for a mortgage loan. Mortgage fraud perpetrators also likely seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit,” according to the FBI.
Such scams come in a variety of flavors. “Emerging and re-emerging schemes for 2007 included builder-bailouts, seller assistance, short sales, foreclosure rescue, and identity thefts exploiting home equity lines of credit,” the report said.
It’s keeping the FBI busy. At the end of fiscal 2007, the agency had 1,204 pending mortgage fraud cases, which represents a 47 percent jump from the same period a year ago.
For more information, visit http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm.
Alison Rice is senior editor, online, for BUILDER magazine.