False employment history and claimed income accounted for the most common types of fraud in 2007, according to the Mortgage Asset Research Institute's (MARI) Tenth Periodic Mortgage Fraud Case Report.
The degree of undisclosed debts, liens or judgments also increased by 50% between 2006 and 2007. For the second consecutive year, Florida topped the list in state fraud rankings, according to the report, which was prepared by members of the Mortgage Bankers Association.
"Certainly there's enough blame to go around," Merle D. Sharick, vice president-manager at ChoicePoint Mortgage, said during a conference call on March 13. "It starts even with those borrowers who viewed their home as an ATM or an investment vehicle and wanted to take advantage of the market the best that they could, to the lender or broker who was involved with the transaction who helped facilitate that."
Sharick said that mortgage fraud exists in two ways: fraud for profit and fraud for housing. The first is the one that law enforcement focuses on because it causes bigger financial losses, he said.
Fraud for housing is something that's been known about for years, but seemed less important as long as borrowers were making their payments. But in a constricting market where there are payment issues and an increase in foreclosures, fraud for housing is looming larger.
"We're finding that fraud for housing is probably a little bigger issue than we thought," Sharick said. "In the past we've taken a less than aggressive approach with that."
After Florida, the states ranked highest on the MARI Fraud Index are Nevada, Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota. Colorado showed the greatest improvement in mitigating the number of fraud cases.
David Kittle, chairman-elect of the MBA, attributed Florida's fraud volume to several factors, including the sheer number of people who live there full-time or part-time. The bigger population translates into higher levels of fraud.
Sharick urged the market to be more due diligent in how each transaction is approached. This means knowing your customer, knowing your employee and knowing your vendor.
"Every relationship represents both opportunity and risk," he said. "We've done a terrific job of answering the opportunities over the last four or five years but the challenge will be mitigating risk going forward."
Despite the housing market's struggles, Sharick expects that in the next couple months there will be significant stability returned to the mortgage market. It will take much longer for stability to return to the real estate market, he added.
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