“Show me the money!” A popular quote from the 1996 movie Jerry Maguire easily sums up the tracking of mortgage fraud trends. Where there is money to be made, mortgage fraud is sure to follow.
The mortgage industry learned some valuable lessons from the real estate crash. Mortgages with risky features, such as interest only or negative amortization, became a playground for mortgage fraudsters from the early 2000s to 2010. Sweeping regulatory changes and business requirements were made to rein in fraud and avoid a repeat of history.
But wait. Are we out of the woods? While recent reports suggest that fraud risk has stabilized, the threat is always constant and evolving. Simply follow the money opportunity and you are sure to find mortgage fraud.
Fraudsters on the Move
Fraudsters are opportunists. With the “show me the money” mindset, mortgage fraud seeks out the path of the most returns and least detection. When the real estate crisis hit and the origination business dried up, fraud perpetrators moved their activity to foreclosure rescue scams and loan modification fraud. A lack of prosecution — except of only the largest fraud operations — emboldened the criminals to continue their practices. They may simply change the name of their business, move to new locations or employers or even change their real estate careers from one segment to another (e.g., from appraiser to loan officer). The rebounding real estate market and reintroduction of alternative financing products make it ripe for increased fraud activity at origination again.
While fraud can vary across different markets, hot spots of greater opportunity are being noted. Florida currently tops the list for mortgage fraud risk. Occupancy and property valuation are the leading issues to watch. Florida’s supply of foreclosed and vacant properties is attracting Fraud-for-Profit schemes, which can include the use of straw buyers and properties that are represented as primary homes that are truly rentals. Additional states to watch for fraud activity include:
- New Jersey
- New York
Purchase loan transactions are more at risk for fraud than refinance transactions, due to the higher risk of occupancy and property value misrepresentations. As mortgage rates rise and volume shifts from refinance to purchase, we will likely see an increase in fraud risk across the nation.
Hardly a week goes by where I do not hear in the news a report of a major data security hack or breach. Perpetrators are ready to buy, sell and use that information for crimes, including mortgage fraud. In mortgage transactions, identity theft manifests itself in the form of stealing an individual’s credit profile or a professional’s credentials, such as a real estate agent or appraiser, to hide the true identity of the buyer or seller. Identity theft in mortgage transactions is on the rise.
The real estate industry has implemented many reforms and improvements to address the issue of fraud. And while the risk in recent years has gradually lessened, we cannot let our guard down. Perpetrators will continue to follow the money opportunities and will take advantage of any weakness in the process. You can head off fraud and ensure data integrity by being vigilant, knowing your customers and vendors, asking questions, being aware of current fraud hot spots, and using fraud detection tools available in the marketplace.Tags: Mortgage Fraud, Mortgage Industry