For the first time in several years, verified reports of mortgage fraud decreased markedly, dropping 41 percent between in 2010 from a year earlier, according to a new report from LexisNexis. But, analysts warn, the drop may be more of a reflection of the increasing complexity of mortgage fraud, as reports of suspicious activity remain elevated.
The institute’s Mortgage Industry Data Exchange (MIDEX) tracks verified reports of mortgage fraud using publicly available databases, tax records and private industry reports. The Mortgage Fraud Index compares the amount of detected fraud among states, with index number above 100 representing the average amount of fraud expected given a state’s mortgage origination volume.
Florida’s index score of 302 once again took the top spot in the firm’s 13th annual report, with more than three times the amount of fraud detected in that state than expected relative to the origination volume. Florida is particularly susceptible to fraud given due to a confluence of factors, including a high proportion of second homes, a huge oversupply of homes built by speculators, and large population of immigrants and non-native English speakers who may not understand the home purchase process and be easier to deceive and recruit into fraud schemes, the authors says.
"The desperation in terms of trying to unload that burden is leading to this activity…[Florida] has a lot of large communities that are very empty, and a lot of builders needing to unload that debt that they’ve incurred," said Denise James, co-author of the Mortgage Asset Research Institute report.
New York, with an index score of 279, and California, with a score of 233, took the silver and bronze respectively, with New Jersey, Maryland, Michigan, Virginia, Ohio, Colorado, and Illinois rounding out the top ten 10.
Wide disparities in fraud levels existed among the states – even among the top 10, Colorado and Illinois’ index scores of 96 and 93, respectively, indicate a slightly lower level of fraud detected than might be expected given their origination volume. The remaining 40 states, including Massachusetts and Connecticut, also had index scores lower than 100.
While the MIDEX measures verified instances of fraud, the authors pointed to several other reports, including reports by the U.S. Treasury’s Financial Crimes Enforcement Network and Fannie Mae, which indicate a rise in reports of suspicious activity and suspected fraud as well.
