Reports of boom-era mortgage fraud on rise
Mortgage fraud reports to the Treasury Department jumped 88% in the second quarter as banks, under pressure from investors to buy back defaulted loans, dug deeper into files from the easy-money era of the housing boom.
And California led the way in this dubious trend, Treasury's Financial Crimes Enforcement Network division said.
In a report Wednesday, the agency said mortgage servicers filed 29,558 suspicious activity reports involving loan fraud, compared with 15,727 in the same quarter of 2010.
Most of the fraudulent mortgages closed during the height of the real estate bubble, the financial crimes division said: 81% of the reports involved suspicious activities before 2008 and 63% described what appeared to be fraud occurring four or more years ago.
Charts from the Financial Crimes Enforcement Network show that California had more reports of mortgage fraud on a per-capita basis than any other state, followed by Florida and Nevada. Six of the top 10 metropolitan-area hotbeds of mortgage fraud were in the Golden State.
Banks are required to report suspicious activities to their regulators. The Treasury unit attributed the spike of mortgage fraud reports in large part to loan repurchase demands from investors who contend that mortgages backing securities were riskier than represented when the bonds were sold.
"Financial institutions are uncovering fraud as they sift through defaulted mortgages," Financial Crimes Enforcement Network Director James H. Freis Jr. said in a statement.
Fraud continues in new loans, albeit at a lower level, he added, with misrepresentations of income, occupancy, or debts and assets the most common violations.
-- E. Scott Reckard
Photo: Financial Crimes Enforcement Network Director James H. Fries Jr. Source: Financial Crimes Enforcement Network