On Friday November 3, 2006 the Financial Crimes Enforcement Network (FinCEN) revealed that suspected mortgage loan fraud in the US has risen by 35 percent in the past year.
FinCEN conducted an assessment, which was based on an analysis of Suspicious Activity Reports (SARs) regarding suspected mortgage loan fraud, to identify trends and patterns that may be useful to law enforcement, regulatory authorities, and financial institutions offering mortgage loan products.
Click here to read the full report from FinCEN
FinCEN had noticed that SARs for mortgage fraud had risen by 1,411% by 2005. Many of the SARs reviewed included more than one characterization of suspicious activity in addition to mortgage fraud.
“False statement” was the most reported activity in conjunction with mortgage loan fraud, while “identity theft” was the fastest growing secondary characterization reported. In total they found 82,851 SARs had been filed in the 10 year period April 1, 1996 to March 31, 2006.
FinCEN said its findings in the assessment are supported by the recent rise in the number of pending law enforcement cases involving mortgage loan fraud. Thanks to The Mortgage Fraud Blog.
Appraisal fraud and fraudulent property flipping were described in 111 of the sampled reports (10.55%).
Appraisal fraud is frequently associated with fraudulent property flipping. Filers indicated on 48 (42.34%) of these reports that they suspected the fraudulent activity was perpetrated with the collusion of mortgage brokers, appraisers, borrowers, and/or real estate agents/brokers.
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Some commonly reported types of appraisal fraud found in the sampled narratives are:
- Appraisers failed to use comparable properties to establish property values;
- Appraisers failed to physically visit the property and based the appraisal solely on comparable properties, i.e., the actual condition of the property was not factored into the appraisal;
- Appraisers participated in a fraud scheme such as flipping; or
- A licensed appraiser’s name and seal were used by unauthorized persons.
Fraudulent property flipping is purchasing property and artificially inflating its value. The fraud perpetrators frequently use identity theft, straw borrowers and industry insiders to effect property flipping schemes. Ultimately, the property is resold for 50 to 100 percent of its original cost. In the end, the loan amount exceeds the value of the property and the lender sustains a loss when the loan defaults.
This chart (click to enlarge) depicts the reporting trend for appraisal fraud and fraudulent property flipping as described in the sampled narratives.
The number of sampled narratives that specified fraudulent property flipping activity remained steady over the past four years. A significant spike in reports describing appraisal fraud was seen in 2004, but there was a slight decrease in the trend in 2005. This does not necessarily indicate appraisal fraud and fraudulent property flipping are decreasing, especially since activities associated with flipping (straw buyers and false statements) are increasing.
The following fraudulent activities were reported in the sampled narratives that described property flipping.
- Nearly 64 percent of sampled narratives described collusion by sellers, appraisers, and mortgage brokers in connection with property flipping.
- Nearly 14 percent of the sampled narratives described the use of straw buyers.
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