Feds Issue Analyses of Mortgage Fraud Trends

The Financial Crimes Enforcement Network released the attached analysis of suspicious activity related to possible mortgage loan and foreclosure rescue fraud reported in the third quarter of 2009. Separately, the Federal Financial Institutions Examination Council updated its white paper on mortgage fraud detection and deterrence to help examiners understand, identify and detect mortgage fraud schemes and elements.

The FFIEC's white paper defines various types of fraud, gives examples of how individuals commit fraud, provides a list of red flags, and outlines best practices. The FFIEC's white paper does not establish any new examination policies or procedures, nor does it impose new requirements on banks. The FFIEC noted that during fiscal year 2008, at least 63 percent of all pending FBI mortgage fraud investigations involved dollar losses of more than $1 million each. The FFIEC's white paper provides red flags for a variety of mortgage frauds, such as builder bailout schemes, equity skimming, loan modification and refinance scams, phantom sales, property flipping and short sale schemes.

FinCEN found the two most common types of housing fraud in the third quarter of 2009 to be: (1) "mortgage rescue fraud," in which homeowners were conned into signing quit-claim deeds to their properties, which were then sold to straw borrowers and the former homeowners received eviction notices; and (2) false claims to convince distressed homeowners to pay large advance fees for modification services, with a subsequent failure to take any action on the homeowners' behalf. FinCEN's report showed that in the third quarter of 2009, depository institutions submitted 15,697 mortgage fraud Suspicious Activity Reports, a 7.5 percent increase over the same period in 2008.

California and Florida were the leading states for SARs involving housing fraud.