RESTON, Va. - The latest report from the Mortgage Industry Research Institute shows half of all mortgage lenders believe fraud is rising moderately or significantly. As if seeing more incidents of mortgage fraud wasn't bad enough, lenders say they're also experiencing higher costs each time fraud hits. The report, which...
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RESTON, Va. – The latest report from the Mortgage Industry Research Institute shows half of all mortgage lenders believe fraud is rising moderately or significantly. As if seeing more incidents of mortgage fraud wasn’t bad enough, lenders say they’re also experiencing higher costs each time fraud hits. The report, which drew largely on responses from large, national players, does offer some encouragement. “Overall, however, the results do not indicate a `massive’ increase in either the number or cost of mortgage fraud incidents,” researchers stated. The study covered both prime and sub-prime lenders. “The results reported by the survey respondents are somewhat counter to the anecdotal stories circulating at some mortgage industry meetings. Such stories suggest `massive’ increases in both the frequency and loss of fraud. Of course, any company that takes a big hit in just one case may understandably describe that as a `massive’ event,” the study notes. In addition, “At the end of 2002, there is a very high level of interest in mortgage fraud. The increased resources and training many lenders are devoting to fighting and investigating fraud demonstrate commitment from mortgage lenders, insurers and investors to combating this dark side of the industry.” When prime lenders were asked about the number of fraud cases they saw in the last six months compared to a six-month period a year earlier, 60% said the number of cases had risen moderately or significantly. Twenty percent had seen a moderate or significant drop in cases. As for the average potential cost associated with their current fraud cases, 65% said the average potential loss was rising moderately or significantly, and about 15% thought it was falling. Subprime lenders recorded a somewhat different scenario. Only 42% saw moderate to significant increases in the number of fraud cases. As for potential dollar loss exposure, 45% rated the exposure as moderately to significantly rising. A little over 15% experienced a significant drop in loss exposure. Prime lenders indicated their problems centered in identity theft, use of straw buyers, incorrect tax returns and altered borrower credit. Subprime lenders cited false financial statements, altered borrower credit, property flips and straw borrowers as key concerns. The study also found geographic differences in the incidence of mortgage fraud. The most frequently cited areas, unadjusted for population size, were: * Counties and cities in California. These areas were mentioned almost twice as often as any other. * Georgia/Atlanta. “This confirms both press and mortgage professionals’ observations indicating Atlanta and surrounding areas have recently experienced a very significant increase in mortgage fraud,” the study indicates. * Illinois/Chicago. The subprime lenders were particularly concerned here. * Florida, especially cities and counties in South Florida. * Ohio (including Cleveland, Cincinnati and Columbus) and New Jersey were named equally as often. * The next most frequently named areas were New York/New York City, Colorado/Denver and Maryland/Baltimore. Within their organizations, who do lenders expect to investigate fraud? Most respondents, 62% of prime and subprime lenders combined, assign this responsibility to the quality control department. Seventeen percent put the function in internal audit and 17% rely on a separate fraud investigation unit. Most lenders characterized their companies as having zero tolerance for fraud. Some, however, described their approach as “aggressive” or “practical.” Researchers weren’t surprised that none said they were “tolerant” or “in denial.” -
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