Mortgage Suspicious Activy Reports (SARs) Continue to Emerge from Pre-2008 Loans

Suspicious Activity Reports (SARs) related to suspected mortgage loan fraud (MLF) filed by depository institutions decreased sharply in the first quarter of 2012 compared to the first quarter of 2011 even as SARs increased overall.  Data on these MLF SARs filings was released Tuesday by the Treasury Department's Financial Crimes Enforcement Network (FinCEN).

There were 17,651 MLF SARs filed during the quarter compared to 25,484 one year earlier, a decrease of 31 percent.  At the same time there were 205,301 SARs of all types, an increase of 10 percent from 186,331 in the first quarter of 2011.  MLFs represented 14 percent of all SAR filings in that earlier period compared to 9 percent in the January-March 2012 period.

FinCEN said there was an unusual spike in MLF SARs filings during the first three quarters of 2011.  These arose primarily out of mortgage repurchase demands on banks which prompted a review of loan origination documents and subsequent detection of suspected fraud.  Filings in early 2012 show that problems continue to emerge from loans originated in the pre-2009 period which accounted for the majority of delinquencies and foreclosures experienced since 2008.

Of the MLF SARs filed in the first quarter, 28 percent related to loans that were four to five years old and 44 percent to loans that were more than five years from their origination data.  One year ago 79 percent were three or more years old. 

While only a minority of filers included loss totals and fewer did so in 2012 than in 2011, more than 80 percent of the losses reported were for amounts under $500,000.  Very few filings (51 in 2012) reported any recovery of losses.

Numbers of SAR were logically the largest in the largest states - California, Florida, New York, and Illinois.  On a per capita basis California was in first place as it was during all of 2011.  Nevada ranked second, rising from fifth place in 2011 and Florida was third.  Los Angeles had the highest number of MLF SARs of any of the large metropolitan areas both by volume and on a per capita basis.  Two other California MSAs, the Riverside area and San Jose-Sunnyvale were second and third on a per capital basis followed by Las Vegas and Miami.

To determine the latest trends in suspected mortgage fraud FinCEN examined a subset of MLF SARs filings reporting activities that were less than two years old.  Nineteen percent of 3,354 MLF SARs filed during the first quarter met this criterion and FinCEN examined a sample of 334 or ten percent.  The largest category of suspected fraud was defined as income followed by occupancy, employment, and debt elimination.  Compared to the Q1 2011 report, debt elimination fraud increased as did foreclosure rescue scams while appraisal fraud was down. 

FinCen reported an increasing number of SARs that appeared to involve "repeat subjects."  For example, several foreclosure rescue scam reports noted that numerous borrowers had complained about the subject organizations.  The same was true of some SARs related to proposed debt relief services.  Filers also noted several short sale SARs subjects who had been involved in numerous fraudulent transactions.  This information could provide useful information to law enforcement.

FinCen also identified fraud patterns not noted in other reports.  One was homeowners insurance fraud where borrowers pocketed insurance payments after home fires and another, "Keys for Cash" where persons moved into bank owned properties claiming to have long term leases.  Their true objective appeared to be inducing lenders into paying them to vacate the properties.

In a related matter, the Department of Justice and the offices of the Inspector General for both the Department of Housing and Urban Development and the Federal Housing Finance Agency held mortgage fraud summits in two cities on Tuesday to help protect homeowners in areas hardest hit by mortgage scams.  A third summit slated for Tallahassee, Florida is being rescheduled because of severe weather in the area.  The summits were organized by President Obama's Financial Fraud Enforcement Task Force's (FFETF) Mortgage Fraud Working Group of which FinCEN is a member.  

"Preventing, detecting and prosecuting mortgage fraud is a top priority of the Financial Fraud Enforcement Task Force and its Mortgage Fraud Working Group members," said FFETF Executive Director Michael Bresnick. "It's more important than ever that we arm homeowners with the information they need to recognize the predators up front and empower them to avoid falling victim to these devastating scams. That's why the task force is holding these summits in states hit hardest by the foreclosure crisis."