California Leads Nation in Rising Mortgage Fraud Complaints

Mortgage fraud reports rose 88% this year over the same quarter of 2010, according to a report released last week by the Treasury Department’s Financial Crimes Enforcement Network. And California led the charge, showing the largest jump in potential fraud cases, followed by Florida and Nevada. Six of the top 10 leading metropolitan areas in mortgage fraud were in California.

The majority of mortgages suspected of fraud closed before the housing bubble burst. The report stated that 81% of the complaints involved suspicious behavior before 2008, with 63% occurring four or more years ago.

Why? Because “financial institutions are uncovering fraud as they sift through defaulted mortgages,” said Financial Crimes Enforcement Network Director James H. Freis Jr. in a statement.

Most of the cases are due to banks re-examining loans at the urging of investors who believe that mortgage backed securities were riskier than reported when they were sold. The top fraud claims are misrepresentations of income, occupancy, or debts and assets.

It’s obvious that the federal government is taking an even closer look at the mortgage industry. And they’re finding a lot of loans to be concerned about. Agents need to be incredibly careful that they don’t put forth faulty information. This isn’t just about buyers who are looking to scam the industry.

In fact, just last week twenty people in South Florida, including licensed real estate agents and mortgage brokers, were charged in a $40 million bank and mortgage fraud scheme. Putting any false statements on loan applications can lead to immediate and massive consequences for agents, brokers or lenders.

“I have to wonder if the [suspicious activity reports] being filed now are not organized scams but just people who wanted a home they couldn’t afford,” said Robert Simpson, who heads up a Santa Ana-based mortgage fraud audit company.

Read the full story in the LA Times here.