Mortgage fraud in US escalates to all time high

Mortgage fraud in the US is at an all time high with states like Florida with high foreclosure rates among the most badly affected.

Indeed, the increase in foreclosures has led to a whole new trend in mortgage fraud connected with foreclosure prevention schemes and so-called foreclosure specialists.

A new report shows that mortgage fraud has increased by 26% from 2007 to 2008 and Rhode Island tops the league with more than three times the expected amount of fraud in relation to its origination volume. It is the second major report this year to show increasing levels of mortgage fraud.

The report from the Mortgage Asset Research Institute shows that Florida, which ranked first in 2007 and 2006, dropped to second place, followed by Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

'With fewer loan originations today the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud,' said Denise James, director of Residential Mortgage Solutions and co-author of the report.

'Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur,' she added.

The most common form of fraud is in applications which accounted for 61% of all reported frauds, according to MARI. Frauds related to tax returns and financial statements were the second most common, accounting for 28% of reported frauds in 2008 and a massive 60% increase from 2007.

There was also appraisal or valuations fraud with a small number relating verifications of deposit, verifications of employment, escrow or closing costs, and credit reports.

The report points out that mortgage fraud also takes the form of foreclosure prevention schemes by supposedly 'knowledgeable foreclosure specialists', identity theft against elderly and immigrants, and a so-called 'builder bail-out' form of fraud in which investors are urged to buy into condo conversion or planned community development projects.

Experts say that the mortgage process should be simplified as this would combat a lot of fraud. 'Fraud enjoys confusion,' said John Courson, president and chief executive officer of the Mortgage Bankers Association. He said instances of appraisal related fraud should decline in coming months when the revised Home Valuation Code of Conduct comes into place on 1st of May.

However, he added that the MARI report shows that mortgage fraud is more prevalent today than it was at the height of the boom in mortgage loan originations.