The Federal Bureau of Investigations (FBI) released a new report on mortgage fraud May 13.

With the downturn in the economy and all the troubles in the lending industry, it isn’t a pretty picture.

Although there is no central way to track the total extent of the problem, the FBI received 46,717 suspicious activity reports related to mortgage fraud last year, compared to 35,617 in 2006 and just 6,936 in 2003.

Only 7 percent of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7 percent was $813 million.

The FBI caseload has also escalated.

By the end of fiscal year 2007, the FBI were handling just over 1,200 mortgage fraud investigations, a 47 percent increase from 2006, and a whopping 176 percent increase from 2003.

The FBI warns that the downward trend in the housing market will continue, providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.

The subprime lending crisis is a contributing factor to mortgage fraud, both directly and indirectly, according the FBI.

Subprime loans, designed for people with poor or limited credit histories, now represent more than 13 percent of all outstanding loans, double the percentage of five years ago.

These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75 percent from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by borrowers anxious to qualify for loans, both of which contributed to fraud.

The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were: Minnesota, Florida, Georgia, Michigan, California, Illinois, Ohio, Texas, New York and Colorado. The north-central region had the largest share of mortgage fraud, followed by the west and southeast regions. 

According to the FBI, the latest mortgage scams run the gamut: from “builder-bailout” schemes where developers unload excess inventory through financial trickery; to foreclosure rescue frauds that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes to identity theft that leads to home equity credit lines being opened and drained.

FBI Issues 2007 Mortgage Fraud Report

According to the Federal Bureau of Investigation’s 2007 Mortgage Fraud Report, released today, mortgage fraud Suspicious Activity Reports referred to law enforcement increased 31 percent to 46,717 during Fiscal Year 2007.

The total dollar loss attributed to mortgage fraud is unknown. However, 7 percent of reports filed during fiscal year 2007 indicated a specific dollar loss, which totaled more than $813 million.

“The $813 million loss denoted in this report is just the tip of the iceberg, reflecting only a small percentage of financial damage suffered by victims of mortgage fraud,” said Assistant Director Kenneth W. Kaiser, FBI Criminal Investigative Division. “The FBI remains committed to working with our law enforcement, regulatory, and industry partners to unravel these complicated fraud schemes and bring their perpetrators to justice.”

Other key findings presented in the report include:The subprime share of outstanding loans has more than doubled since 2003, putting a greater share of loans at higher risk of failure. More than 2.2 million foreclosure filings were reported on approximately 1.29 million properties nationally during fiscal year 2007, up 75 percent from fiscal year 2006. Analysis of available information indicated that mortgage fraud was most concentrated in the north-central region of the United States.

The downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes. The entire report [2] is available on the FBI’s website.

Here are a couple other links to FBI Web sites regarding mortgage fraud:

www.fbi.gov/hq/mortgage_fraud.htm [3]

http://www.fbi.gov/publications/fraud/mortgage_fraud07.htm [4]