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Special Reports
Mortgage Fraud: Protecting
The Investment
MARI: Shift in Fraud 'Hot Spots'
GA has the highest fraud index value.
By Brad Finkelstein
RESTON, VA -- There has been a shift, both in the hot spots for fraud, as well
as in the type of fraud seen, according to an executive with the Mortgage Asset Research Institute Inc. here.
William Matthews, vice president and general manager of MARI, noted that in the
past, the leading locations for fraud were in Southern California and more recently, Dade and Broward Counties
in Southern Florida.
But recently, based on 2002-2003 data, there has been a shift.
The state with the highest MARI Fraud Index value is Georgia, with 207, followed
by Nevada, with 203. Florida is now third at 194, while California has gone all the way down to sixth at 153.
The index is constructed based on submissions by MARI subscribers to the MIDEX
database. It takes into account the state's population and the number of alleged incidents relative to the population.
An index value of 100 is average. Because of its very small population, the District of Columbia has a 399 index
value.
Mr. Matthews noted that a lot of mortgage fraud is a result of some economic abnormality,
such as the bust in the Oil Patch states during the 1980s and 1990s.
A group that suffers from being victims of fraud are immigrants, who by nature
are vulnerable targets for fraudsters.
The high fraud situation in Georgia, he said, is a result of a land-flip scheme
in Fulton County, which includes Atlanta.
The impact of land flips on a community can be devastating, he noted. In many
cases, the flips are conducted by groups allegedly dealing with illegal drug sales and unsavory elements move into
the neighborhoods.
Meanwhile, as values of surrounding properties go up because of the flips, the
illegal activity helps to deter legitimate home sales in the area.
Eventually the market crashes. Schools lose out because they had based property
tax levies on the inflated prices.
Another hot spot, Mr. Matthews said, is Detroit, where alleged organized land-flip
activity is being seen.
While rising property values have helped to cover up fraud, the recent rise in
interest rates should lead to more fraudulent activities taking place.
Utah has the fifth highest fraud index value, at 179. Mr. Matthews attributed
the fraud activity to the Winter Olympics of two years ago. The games attracted a lot of attention to the state.
Meanwhile, fraud for profit (such as flipping) is now overshadowing fraud for
commission (i.e., a lender, broker or Realtor shading an application in order to collect their fee).
By type, and Mr. Matthews noted the final numbers add up to greater than 100%
because typically more than one type of fraud is found, application fraud remains the most seen, at 60% for 2003.
But this is down from 68% in 2001.
Tax-return fraud has increased significant during the same time, from 25% in 2001
to 38% in 2003. Mr. Matthews noted that MARI categorizes fraud in the year it occurs, not when it is reported to
MIDEX, and so 2003 data are still coming in as it is uncovered.
Verification of employment, as high as 19% in 2000, and verification of deposit
fraud, at 22% for the same year, both clocked in at 12%.
During the same timeframe, escrow fraud has gone from 19% to 9% and reported appraisal
fraud from 24% to 12%.
But Mr. Matthews warned that appraisal fraud is probably occurring at a greater
level than what is being reported to MIDEX.
While lenders are seeing something fishy with the appraisal, he said, they are
finding other types of fraud and reporting those to MIDEX. The lenders are not spending the financial resources,
as a result, to do the review appraisals that would confirm the appraisal fraud.
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