Washington: Fraudsters netted millions of dollars through mortgage scams last year, and the trend was likely to continue as the U.S. housing market slumps even further, FBI said Tuesday.
“We received 46,717 suspicious activity reports related to mortgage fraud last year, compared to 35,617 in 2006 and just 6,936 in 2003,” the Federal Bureau of Investigation report said.
“Only 7% of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7% was Rs813 million,” it said, calling the monetary loss “tip of the iceberg.”
The crisis in the subprime mortgage market -- loans to high-risk borrowers with patchy credit histories -- played a key role in fueling the spike in the scams, the report said.
“The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by borrowers anxious to qualify for loans, both of which contributed to fraud,” the FBI said.
Defining mortgage fraud
Mortgage fraud is defined in the report as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.”
The most common perpetrators of such scams were people in finance-related occupations, including accountants, mortgage brokers, and lenders.
Victims were often borrowers, mortgage industry entities, and residents of neighbourhoods affected by mortgage fraud, the report said.
“As properties affected by mortgage fraud are sold at artificially inflated prices, properties in surrounding neighborhoods also become artificially inflated... property taxes increase as well,” it said.
“Legitimate homeowners also find it difficult to sell their homes as surrounding properties affected by fraud deteriorate. When properties foreclose as a result of mortgage fraud, neighborhoods deteriorate and surrounding properties depreciate.”
Citing a report by the Mortgage Bankers Association (MBA), dating from January, which forecast that the housing slump would continue throughout this year, the FBI predicted no let-up in mortgage fraud.
The MBA report predicts that sales of new and existing homes will decline by 15% and 13% respectively this year compared with last, with home prices also declining in 2008.