South Carolina is fast becoming one of the states with the most mortgage fraud. And while many of states already known for fraud still place at or near the top, some new players emerge when fraud on just subprime lending is analyzed.
The Mortgage Asset Research Institute Inc. has issued its seventh annual report on the composition of residential mortgage fraud and misrepresentation. The report was prepared for and recently announced by the Mortgage Bankers Association, which earlier this year launched a site dedicated to combating fraud against lenders and also gathered government and industry officials at a National Fraud Summit to discuss the impact of mortgage fraud on the lending industry.
“Mortgage fraud against lenders is a growing problem for the industry, and one that impacts homeowners as well as lenders,” said Kurt Pfotenhauer, senior vice president of government affairs at MBA, in the announcement. “The MARI report is another tool that equips MBAs members with the necessary knowledge to catch and avoid fraud in their operations,”
The Seventh Periodic Mortgage Fraud Case Report to Mortgage Bankers Association, which analyzes the industry over the past four years, resembles preliminary data released to MortgageDaily.com by MARI Vice President and General Manager Bill Matthews.
The latest report shows that Georgia is still the state with the highest level of reported fraud — almost three times higher than the national average.
One change from preliminary findings is that South Carolina moved into the second position by a substantial margin, about 2.5 times higher than national average, kicking Florida down to third place with reported fraud being almost two times higher than the national average.
For most of the past decade, Florida and California had led the nation by substantial margins, MARI noted.
California has fallen off the top 10 list , but “many of its problems are likely being masked by high real estate appreciation,” MARI said in the report. Another factor that may be influencing this outcome is that many homes are purchased by multiple families but the loan application is made under the family with the best credit record and score, and the “income” actually represents the pooled income of all the families. Lenders are unsure of whether to report such incidents as misrepresentations because mortgage records show timely payments.
Utah and North Carolina completed the top five states with the highest level of reported fraud, MARI said, noting that the five states had a fraud score 150% higher than what was expected, based on each state’s origination volumes over the past four years.
Missouri, Nevada, Texas, Illinois and Michigan followed in spots six through 10, according to the report.
When fraud reports are broken out between prime and subprime lending, positions among the top 10 shift only slightly. Major exceptions, however, are New York, Arizona and Mississippi, which are showing a rise in subprime lending problems. And Texas appears to have more serious problems in prime lending than in subprime originations, according to MARI.
MARI found that problems continue to rise in the Midwest, and cities of moderate size appear to have particularly serious problems with recent originations that become seriously delinquent.
Amongst metropolitan statistical areas, Atlanta ranks first in the nation for prime loan Serious Early Defaults, which are loans that become delinquent by more than 90 days or go into foreclosure within the first six to 18 months.
In analyzing Serious Early Defaults on subprime loans within states, the report said Oklahoma led the pack.
The types of problems found in loan fraud files seem to have been relatively stable throughout the last four years, MARI said. Fraudulent applications and tax and financial statements continue being the leading trends.
The report is based on information reported through MARIs database, the Mortgage Industry Data Exchange or MIDEX. Mortgage lenders, insurers and agencies are members of the database and exchange information about companies and professionals that have been involved in loan transactions containing alleged fraud or material misrepresentations.
