The Financial Crimes Enforcement Network (FinCEN) released an analysis of Mortgage Fraud SAR Filings in Calendar Year 2012. FinCEN’s data on suspected mortgage fraud shows that reports declined 25 percent in 2012 (from 92,561 to 69,277) as compared to the previous year. The past three years of suspected mortgage fraud suspicious activity reports (SARs), if counted by the date they were received by FinCEN, accounted for approximately 46 percent of the past decade’s mortgage fraud SARs.
However, suspicious activity is often only recognized and reported years after loan origination, after a review of origination documents is prompted by a loan default, repurchase demand, or other factors. As a result, many mortgage fraud SARs are filed much later than the date that the suspicious activity actually began. Thus in 2012, 57 percent of SARs received reported mortgage loan fraud (MLF) activities that started more than five years before the SAR was filed.
The bulk of FinCEN’s MLF SARs, regardless of filing date, reference suspicious activity that filers believe began in calendar years 2006 and 2007.The statistics show that there was an extraordinary concentration of suspicious mortgage origination activity beginning in 2006 and 2007, the years immediately preceding the financial crisis of 2008.
Depository institutions filed 37,457 MLF SARs in 2006 and 52,862 in 2007. At the time, those numbers represented huge increases over previous years, but they seriously underrepresented the amount of suspicious mortgage fraud activity that could have potentially been reported in those years if the suspicious activity had been detected closer to loan origination.
The report states that California was the number one ranked state for MLF subjects per capita and in total MLF SAR volume in 2012. It also held that position in 2011.
“For the 2012 calendar year, California was followed in the per capita rankings by Nevada, Florida, Arizona, and Washington, D.C.,” the report stated. “While Florida and Washington, D.C. held the same ranks in 2011, Nevada moved up from fourth last year, and Arizona moved up from seventh last year. Last year’s number two ranked state, Hawaii, dropped to 15th in CY 2012.”
The report also provided updated statistics on filers’ voluntary use of the FinCEN SAR for mortgage fraud reporting through March 31, 2013. The new FinCEN SAR has five fields in the mortgage fraud category to highlight types of activity most actionable for law enforcement. This includes fields for appraisal fraud, foreclosure fraud, loan modification and reverse mortgage fraud.
“Before the April 1, 2013, mandatory deadline for financial institutions to use the FinCEN SAR, FinCen received 11,927 mortgage fraud reports using the FinCEN SAR instead of the legacy SAR forms,” the report stated. “In the vast majority of filings (87 percent), filers selected the ‘other’ field. Filers also identified appraisal fraud in 13 percent of filings, loan modification fraud in 6 percent, foreclosure fraud in 3 percent and reverse mortgage fraud in less than 1 percent of reports (18 filings). Because filers could choose more than one category, these figures total more than 100 percent.”
“To further describe other’ mortgage fraud, filers used 1,667 unique items in the 50 character field,” the report stated. “Most of the fraud described was related to loan origination and borrower misrepresentations, which is consistent with FinCEN analysis of mortgage fraud in previous reports. Statistically speaking, 38 percent of the FinCEN SAR filings specifically spelled out ‘origination fraud’ In the ‘other’ field. Filers frequently used words describing other common types of origination-related fraud, including borrower misrepresentations of tax identification numbers (Social Security numbers and individual tax identification numbers), income tax records, employment and occupancy of the loan property.”