Mortgage fraud up 26% in 2008, data show

Incidents of mortgage fraud rose 26 percent nationally in 2008 over 2007 even as the number of home-loan originations dropped, the Mortgage Asset Research Institute reported yesterday.

The foreclosure epidemic helped boost the numbers as scammers sought to take advantage of borrowers trying to save their homes, said Denise James, an author of the annual report, presented at a Mortgage Bankers Association meeting in Washington.

"Mortgage fraud was once primarily a crime of opportunity," James said in a conference call. "It is now a crime of desperation, as people who had been used to living a certain kind of lifestyle found that lenders had tightened the rules."

Mortgage fraud relates to deception at any point in the process, from appraisals to verifications of employment to closing costs and credit reports. The data, covering 70 percent of mortgages originated over a year, are supplied by lenders, mortgage insurance firms, and other industry sources, James said.

Rhode Island led the 50 states in mortgage-fraud incidents compared with loan originations, followed by Florida, Illinois, Georgia, and Maryland. Neither Pennsylvania nor New Jersey ranked in the top 10.

The institute declines to supply the numbers on which it bases its analysis, to protect the reputation of the institutions providing the data.

Application fraud accounted for 61 percent of all reported incidents, for a fifth year. James said there had been an increase in identity theft among the elderly and immigrants to fabricate reverse-mortgage applications and other property transactions.

Mortgage Bankers Association president John Courson said the data showed that mortgage fraud was more prevalent now than during the recent real estate boom. Much of the fraud coming to light today was committed during the boom, however - Courson said a high volume of loans and loan products made it difficult to catch earlier.

"A lot of loans were made," he said, "in which the borrower simply told the lender what their income was" without providing proof.