WASHINGTON – Despite the drop in mortgage originations in 2004 from 2003, preliminary 2004 numbers on residential mortgage fraud and misrepresentation evaluated by the Mortgage Asset Research Institute show that related problems are on the rise. MARI recently released its Seventh Periodic Mortgage Fraud Case Report to Mortgage Bankers Association that shows the FBI reported that 2004 mortgage related suspicious activity reports (SARS) were almost 2.5 times higher than the 2003 level. Comparing data collected for 2004 to previous years, one of the most apparent changes concerns the states with the greatest mortgage fraud problems. According to the report, for most of the past decade fraud rates from California and Florida had led the rest of the country "by substantial margins." In the past few years though, Georgia has become the hot spot in the country for reported incidents, and recently South Carolina moved into second position by a substantial margin ahead of third place Florida which was entrenched in second place for many years. The report states that, "reported fraud in California has dropped significantly, but many of its problems are likely being masked by high real estate appreciation" especially in Southern California and the San Francisco Bay area. In addition, the report states that "these rapidly rising property values may be adding to the fraud problem." Regionally, problems continue to rise in the Midwest – Michigan, Missouri, and Illinois are going up in the MFI rankings – and cities of moderate size appear to have particularly serious problems with recently originations that become seriously delinquent. Concerning early serious delinquencies being indicators of possible fraud, the report stresses that "loans that become delinquent by more than 90 days or go into foreclosure in the first six to 18 months, Serious Early Defaults (SEDs), do not necessarily involved fraud. However, many such loans contain some form of misrepresentation and should not have been made." MARI's MIDEX system classifies the types of alleged fraud involved in each incident. In 2004, the most prevalent fraud cases involved applications (56%), tax and financial statements (33%), verifications of deposit (16%), verifications of employment (12%), appraisals/valuations (10%), escrow/closing (6%), and credit reports (1%). MARI's fraud report also breaks out fraud between prime and subprime lending, and even here the state indices and ranks are almost similar. Some major exceptions though are in New York, Arizona and Mississippi which are showing a rise in subprime lending problems, the report states. In conclusion, the report finds that it "appears that there are subtle changes in the incidence and types of fraud lenders, mortgage insurers and secondary market agencies are seeing. If there is another significant reduction in originations for 2005, additional future cases could surface at a rapid rate as some originators try to maintain high origination levels." -
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