Banks Report Increased Foreclosure Rescue Fraud

The Financial Crimes Enforcement Network (FinCEN) has issued its Mortgage Fraud Update for the second quarter of 2012.  The update is based on mortgage-loan related activity from Suspicious Activity Report (SAR) filings made by depository institutions from April through June.

While SARS increased by 9 percent from 203,468 in the first quarter to 220,854 in the second, Mortgage loan fraud (MLF) filings decreased dramatically.  In the first quarter there had been 29,558 such filings but that number fell by 41 percent to 17,476 in the second quarter.  MLFs as a share of all SARS fell 46 percent from 16 percent to 8 percent.   This puts the MLF share below the 10 percent of SARS it has averaged since 2007.  At the same time, scams related to foreclosure rescues are rising dramatically.

MLF reports increased sharply in 2011 as repurchase demands on banks prompted them to review origination and refinancing documents.  The suspicious activity reported during that period had often occurred much earlier and, while this back filing continues, the time in the current report are slightly less than in recent quarters.  In Q2 2012 78 percent of reported activities had occurred more than two years earlier and 73 percent more than four years earlier.  This compares to 87 percent and 63 percent in Q2 of 2011.  However, in the current quarter 56 percent of activities reported had occurred more than 5 years earlier compared to 25 percent in the same quarter in 2011.  The report notes that this increase in very dated SARs could indicate that the banks are still working through the backlog of bad loans originated in the 2006-2007 period.  In both this and the earlier second quarters the majority of reported activities actually began before or during 2008.

Filers disclosed loss amounts in only 14 percent of SARs but of those 86 percent reported losses under $500,000, approximately the same proportion as in the 2011 period.  Consistent with earlier years, only a smattering of institutions reported recovered amounts.

The largest number of MLF SARs was filed in California and Florida but on a per capita basis California had the largest numbers followed by Nevada, then Florida, Arizona, and Colorado.  Los Angeles had the highest volume of reported mortgage fraud subjects among metropolitan areas followed by New York, Chicago, Riverside (California), and Miami.

The second quarter report focuses on SARs involving foreclosure rescue scams and similar schemes targeting homeowners in financial difficulty with their mortgages.  During the quarter FinCEN received 1,325 SARs containing the actual words "foreclosure rescue" or 8 percent of the 17,476 MLF SARs reports received.  The incidence of this type of fraud grew in the first half of 2012 even as the total number of MLF SARs declined.  FinCEN says if the pace of these reports continues through the remainder of the year the total could reach over 4,700, compared to just over 2,700 in all of 2011.   

FinCEN said that several factors may be influencing this upward trend including increased awareness of the fraud and the real estate market itself which may now provide more opportunity for these activities than for fraud related to origination.  FinCEN has also encouraged filers to use the term "foreclosure rescue" which facilitated their identification and classification of this type of fraud.

Foreclosure rescue SARs stood out from the typical MLF SAR because of higher suspicious activity amounts.    The median amount was significantly higher for foreclosure rescues at $345,000 compared to $265,500 for all MLF SARs in the second quarter.  Similarly, the percentage of reports with suspicious activity amounts above $2 million was greater for the foreclosure rescue SARs, at eight percent, compared to six percent of all 2012 Q2 MLF SARs with suspicious activity amounts over $1 million.