Mortgage Fraud Rampant

In my post on Wednesday, I questioned the claim that the dollar value of mortgage fraud was surging, arguing that firms had just become more aware of fraud and filing more suspicious activity reports, but catching on to fraud before the loan was finalized.

In the comments, Ann Fulmer, vice president of Interthinx, a firm that tracks mortgage fraud, disagreed with me wholeheartedly. Her main point was that many banks and lenders aren't required to file suspicious activity reports with the FBI, so the Bureau's numbers aren't reflective of the real trend. Here is more from an email she sent me:

We screen mortgage applications for indications of fraud and have not seen a slow down even though origination volumes are down, which suggests that fraud is increasing. Our numbers reflect the fact that fraud is shifting from a crime of profit to a crime of desperation as mortgage professionals whose livelihood is dependent on closing the sale and mortgage get "creative" in an effort to maintain their income, and as borrowers who must now have W-2 income and a substantial down payment get "creative" (with the assistance of said professionals) in order to qualify.
It may be true that some of the increase is an artifact of better reporting by lenders, but as I posted in my comment to your article, the FBI numbers are significantly understated because only 1/3 of lenders are required to file SARs (the basis for the FBI report), many lenders do not recognize or report fraud when loans go into default, and the dollar loss reported is only the direct loss to lenders and doesn't account to the collateral damage to neighborhoods and local governments.

Interthinx also recently said that it uncovered $11 billion worth of fraud in mortgage applications. I'm sympathetic to Fulmer's claims, but I'm not 100 percent convinced. The $11 billion figure is associated with applications and not actual loans, and the reporting problems described in her comments seem like they might exist throughout all years and are not specific to the last year.

Fulmer got into the mortgage fraud industry in a very interesting way. You can read more about her here.

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