|MORTGAGE FRAUD Collusion: The ‘new normal?’|
While mortgage-fraud rates among industry professionals were down in 2011, there have been significant increases in potential collusion fraud activity over the last three years, according to the latest annual report from LexisNexis.
“Increased levels of fraud and misrepresentation in the foreclosure, short sale, and real estate-owned worlds have pushed the issue of collusion to the forefront,” says Tom Brown, senior vice-president, Financial Services, LexisNexis. “Now, more than ever before, these complex schemes are coming under increased scrutiny, and investigators need to pay attention to all parties and relationships in non-arm’s length transactions. Data alone is not enough to identify fraud. It’s the application of linking technologies and analysis that shines a light on collusion and fraud in general.”
The LexisNexis 14th Annual Mortgage Fraud Report examines the current state of U.S. residential mortgage fraud and misrepresentation by industry professionals, based on data submitted by LexisNexis Mortgage Industry Data Exchange (MIDEX) subscribers.
Based on MIDEX subscriber-submitted incident reports prior to 2009, evidence of collusion by professionals in the mortgage industry was relatively consistent at just below 5% of all loan originations. Of the loans originated in 2009, 7% were reported with evidence of collusion. In 2010, it was 9.7%. Last year, it was down to 6.8%—but still slightly above historic levels.
“The data in our Mortgage Fraud Report reveals that just as the financial world failed to realize the impact of fraud for profit until significant damage was done, the mortgage industry is now waking up to increased instances of collusion, the sophistication of these schemes, and larger resultant losses,” says Tim Coyle, senior director, Financial Services, LexisNexis. “Unfortunately, this has become the ‘new normal’ in the mortgage industry.”
The Mortgage Fraud Index (MFI) ranks states on the incidence of fraud, both in terms of investigations and loan originations. For 2011, Florida headed the list as the state with the highest MFI for investigations, followed by Nevada, Arizona, Michigan, and Rhode Island. In mortgage originations, New Jersey and Colorado topped the list followed by Florida, Michigan, and California.
Closer analysis of the most reported areas for fraud and misrepresentation for loans originated in 2011 yields five Metropolitan Statistical Areas (MSA) that, combined, represent 46% of all reports received. The top three MSAs were Los Angeles-Riverside-Orange County, Calif., with 16% fraud; followed by New York-Northern New Jersey-Long Island with 11% fraud; followed by Miami-Fort Lauderdale, Fla., with 7%.
LexisNexis created the first Collusion Indicator Index (CII) to help the mortgage industry understand and pinpoint areas of potential collusion among buyers and sellers. The CII ranks states and is an analysis of deed transfers where it has been determined that there is a potential relationship between the buyer and seller—particularly when a property has been transferred at a significant loss between relatives and known associates.
For 2011, Alabama, New York, Kentucky, Pennsylvania, and Indiana ranked first through fifth on the CII for properties experiencing a 20% to 95% decrease in sales price and mortgage collusion index.
Also in 2011, for properties with a 50% to 95% decrease in sales price, Vermont, West Virginia, Alabama, Pennsylvania, and Louisiana are ranked one through five.
[This article was posted on July 23, 2012, on the website of ABA Banking Journal, www.ababj.com.]
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