Though recent government data indicate the level of mortgage loan fraud is rising steadily, no clear mechanism exists to track and assess the impact of what the FBI calls a growing epidemic in the financial community.
“If there were a database that tracks companies that cease doing business because of mortgage loan fraud, I would definitely know about it,” said Mitch Zak, spokesman for the California Association of Mortgage Brokers.
California leads the FBI’s 2004 list of mortgage fraud hot spots. Maryland is also on the list.
A recent study by the Treasury Department’s Financial Crimes Enforcement Network showed a 1,400 percent rise in mortgage fraud-related suspicious activity reports between 1997 and 2005.
The alarming findings, released in November, included a 92 percent spike in such reports between 2003 and 2004 and an increase of 35 percent during just the first quarter of 2006 — the most recent data available.
The suspicious activity reports, however, only flag potentially irregular transactions — incidents where there might be illegal activity. The rising number of reports could simply mean extra vigilance by the financial services community.
But FBI data indicates that actual fraud is on the rise. The number of FBI convictions for mortgage fraud increased 131 percent from 2001 to 2006.
In 2005 alone, the bureau won 204 mortgage fraud convictions involving crimes that generated an estimated $1 billion in potential losses.
But the suspicious activity reports are only filed by federally chartered or insured financial services institutions and cannot be used to monitor the full range of mortgage activity.
Fully two-thirds of all mortgage loans originate through nonstandardized, nonfederally chartered or insured mortgage brokers, according to the National Association of Mortgage Brokers.
This makes it harder to flag the suspicious transactions that could warn banks against shady
operators.
“The problem with that is that there is no information sharing,” said Andrew Liput of Ciercus Systems Ltd., a New Jersey fraud technology and loss-mitigation consulting firm.
Scammers — including industry insiders, he said — now use sophisticated software to forge loan and appraisal documents. A lack of standardized forms, reporting requirements and registration makes it all the harder to catch them.
“It’s a 50-state deal,” he told The Examiner, with separate license applications, license requirements, supervisory functions and auditing requirements. “We need a national registry to help root out the fraudsters.”
Bank of America spokesman Terry Francisco could not comment on mortgage fraud’s effect on his bank, but said that there were “comprehensive units in place to try to detect fraud.” He allowed, however, that its occurrence can sometimes be “the cost of doing business.”
“Fraud can put a company out of business,” said Liput. “The actual cost is probably double the [2005] number.”
