Mortgage Fraud Trends

The Financial Crimes Enforcement Network (FinCEN) reports mortgage fraud trends based upon Suspicious Activity Reports (SARs) filed by money service businesses, like banks. Money Service Businesses must file a SAR when it knows or suspects that funds came from illegal activity, a particular transaction is structured in such a way to evade reporting requirements or appears to serve no lawful purpose, or the money service business is being used to facilitate criminal activity. FinCEN analyzes SARs data and uses it to identify vulnerabilities in financial systems, like the mortgage industry.

Currently, FinCEN targets the following trends in mortgage fraud:

1. Mortgage brokers initiating fraudulent loan practices.
2. Fraudulent appraisals being used as a basis for flipping.
3. Licensed appraiser identity theft.
4. Cashing out of refinance loans.
5. Fraudulent statements of income, including low or no document loans.
6. Home equity lines of credit.

The specific types of activities that "red flagged" and prompted the SAR filing included:

1. Misrepresentation of income/assets/debts.
2. Forged/fraudulent documents.
3. Occupancy fraud.
4. Appraisal fraud.
5. ID fraud.
6. Straw buyers.
7. ID theft.
8. Flipping.

Participants in the suspected fraud included appraisers, borrowers, builders, correspondent lenders, inside loan officers, investors, mortgage brokers, realtors, sellers, and those who provide settlement services, including attorneys and notaries.

While money service businesses file thousands of SARs a year, federal investigator follow up is minimal. One SARs filer reported that in all his years of filing SARs, he's only seen the government follow up on SARs five to ten times. He suggests that prosecutions resulting from SARs are minimal when compared to the large numbers of suspicious activities being reported every year.

The poor follow up on SARs filings demonstrates another reason why those with direct knowledge of fraud should report that information via a whistleblower claim. The government, even when it receives a report of suspicious activity, is unlikely to ensure the fraud is stopped.