One business model is thriving in the wake of the housing bubble – mortgage fraud. The number of suspicious activity reports filed by financial institutions is higher than ever, reaching nearly 94,000 in 2011. Last year, the FBI estimated that the impact of mortgage fraud on the economy exceeds $3 billion annually.
Much of this increase can be attributed to the recent discovery of fraud related to loan origination that occurred years earlier. Reviews of loan, property, and payment history during the foreclosure process can reveal information that was falsified or concealed during origination.
Whether the victims are vulnerable borrowers or trusting lenders, fraud has added extra pain to an already challenged housing finance system. Even credit unions, long considered at lower risk for fraud because of their closer ties to customers, are feeling the impact.
Fraud investigators are finding far more complex and sophisticated schemes, including collusion between borrowers and loan officers. Analysis shows that a growing number of fraud allegations relate to servicing or real estate-owned (REO) transactions, such as real estate agents holding REO properties for investors rather than marketing them to owner-occupants. Distressed borrowers can be an easy target. Nearly half of all recent suspicious activity reports involved questionable foreclosure rescue or loan modification scams.
With the prevalence of mortgage fraud, credit unions should be concerned about their susceptibility to efforts to misstate, misrepresent, or omit essential information in a mortgage transaction. Because credit unions have enjoyed historically lower fraud rates, they may not recognize suspicious activity. Many credit unions are expanding their membership beyond traditional tight-knit groups, so they may no longer have the kind of close ties to members that would make it easier to detect any misrepresentation of income or assets.
Fannie Mae’s own Mortgage Fraud Program is staffed by investigators who work closely with lenders to help them recognize and mitigate their risk exposure as well as share information with law enforcement to support criminal investigations and prosecutions. The number of mortgage fraud cases in which Fannie Mae has collaborated with law enforcement has tripled over the past two years.
The team analyzes patterns in mortgage loans to identify suspicious activity and follows up on hundreds of tips received each month. When a potential case is identified, it is investigated and reported to the Federal Housing Finance Agency, which reports findings to the Financial Crimes Enforcement Network (FinCEN) and law enforcement. Recently quick action by FinCEN, law enforcement, and Fannie Mae led to an arrest in connection with an attempt to falsify deeds and take possession of nearly two dozen Fannie Mae-owned properties.
Education is important aspect of fraud prevention. More than 105,000 industry professionals have attended our training programs since 2008. Our KnowYourOptions website not only offers information to consumers about alternatives to foreclosure, but also warns about potential foreclosure rescue scams. Fannie Mae also collaborates with federal, state, and local law enforcement agencies, industry players, and non-profits on a consolidated consumer complaint database (www.loanscamalert.org).
These educational efforts are having an impact. Financial institutions are increasingly able to spot and prevent potential fraud before it happens. Fannie Mae benefits as well as we see a decline in the incidence of mortgage fraud in loans acquired for our new book of business.
Fannie Mae offers information and resources on mortgage fraud on our Preventing Mortgage Fraud website.If you have information concerning possible mortgage fraud, contact Fannie Mae at 1-800-732-6643.
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