FRAUD – FRAUD – AND MORE FRAUD:
Up to seventy percent of mortgage payment defaults may be linked to borrower misrepresentations on mortgage loan applications, according to the FBI’s latest Mortgage Fraud Report. At a time when the industry is focused on finding the source of its record number of foreclosures, this information empowers lenders with the insight that can help them proactively prevent costly mortgage defaults and foreclosures. Lenders that implement fraud prevention programs can protect themselves against mortgage fraud, the fastest-growing white-collar crime in the country, while also reducing the number of costly and time-consuming defaults and foreclosures.
The study found that mortgage defaults were largely concentrated in adjustable rate mortgage (ARM) loans, but were present among other loan types, too. The report also revealed that seven of the top 10 states with the highest concentration of mortgage fraud were also in the top 10 states for foreclosures, namely California, Florida, Arizona, Georgia, Indiana, Michigan, Ohio and Texas.
We talk about the increasing numbers of defaults and foreclosures, we need to really look at the root of the problem. The latest information clearly indicates that borrower fraud plays a significant role in the record number of defaults and foreclosures we’ve been seeing over the past couple of years.
The good news is, now that lenders know one of the leading causes of defaults and foreclosures, they can move forward into a solution. Lenders can significantly reduce their number of defaulted and foreclosed loans by implementing a good fraud prevention program.
That said, they must likewise, look no further than behind their own doors of operation for fraud. It is estimated that as many as half of the fraudulent income numbers were written into applications by the loan officers (lenders) or were involved in “coaching” the borrowers to do so simply to get the loan approved and closed.
Mortgage fraud costs lenders an estimated $4 billion per year and identity theft is the fastest-growing segment in the fraud arena. That cost is passed on to borrowers in the form of higher rates, loan costs, and tightening of the underwriting guidelines that now prevent some borrowers from qualifying for a loan they might have otherwise received just a year ago.
Over 60 percent of all mortgage fraud involves income or identity misrepresentation by the borrower, and according to the FBI, often involves the willful participation of an industry “insider” or other professionals such as the loan officer and or broker. There’s no denying the detrimental impact of mortgage fraud upon the industry, but with the right fraud prevention programs and training of the lender’s representatives, we will see less fraud in the future… especially after what we have seen now over the last two years.
Sadly, it has greatly effected every level of the real estate and lending industries.
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