BluefoxToday blog : Mortgage fraud declining amid tightening underwriting criteria

Mortgage fraud declining amid tightening underwriting criteria

CityCenter Las Vegas NVWhen the notorious housing bubble was forming some years ago a lot of factors were aiding and abetting its run to those dizzying, unsustainable heights. One of them was mortgage fraud. Banks were so busy crafting new and glitzy home loan products and making money hand over fist with them that often they overlooked questionable mortgage loan applications. When opportunity knocks, it has to be taken full advantage of, seems to have been the going motto then.

But things have changed drastically in the mortgage world since the air rapidly hissed out of the bubble. Investors, who bought mortgage-backed securities, or MBS, have increasingly requested lenders take back fraudulent loans. That has prompted them to tighten their mortgage guidelines, as it really hurts their bottom line to buy back all sorts of wayward paper. Besides tougher guidelines, application information is also more carefully verified for a change.

First American CoreLogic recently released a study stating that one in 200 mortgages closed in 2009 was fraudulent. In money terms it added up to $14 billion. It sounds like a lot, but it is actually down roughly 25% from a historical high in 2007, now progressing steadily south. It's also predictable that this trend will continue in the coming years, at least as long as mortgage lenders keep hurting the way they do today.

Las Vegas mortgage fraud doesn't make top of list

According to First American CoreLogic's analysis - based on 80 million mortgages scrutinized by its proprietary national fraud data depository - California, Florida, Georgia, North Carolina and South Carolina were among states with most fraud-tainted home loans. The first two were kind of expected to be there due to their overheated markets a few years ago and subsequent high foreclosure rates. In the firm's findings 25% of foreclosures display fraud at the time the original mortgage application was taken. Nevada, spearheaded by the populous Las Vegas valley, for once isn't included among top contenders on a list like this. It has definitely adorned many of them already, so being outside now is certainly cause to hoist a cold one for. Even though Nevada's foreclosure figures are the highest in the nation, it still didn't break into the top five here.

Mortgage fraud for now is decreasing, an entirely encouraging sign. Once lenders climb back on their feet one of these days, it's anyone's guess what will happen then. Will this crippling downturn teach them a lesson to last? Or will the lure of ever increasing earnings again push them into reckless behavior?



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 4 commentsEsko Kiuru • March 22 2010 04:16PM


Esko, the number might have gone down, but their is still questionable behavior going on.  We have the rules in place to correct the FRAUD but the rules have to be enforced and they still are not in many cases.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 9 years ago


The enforcement part could be much tougher, no question.

Posted by Esko Kiuru about 9 years ago

I agree with George, rules must be enforced.  I see plenty of shenanigans with Short Sales and when I call the FBI I am wasting time and my breath to leave them a message at the beep.

Hopefully with the hoops the buyers have to jump through fraud will be reduced tremendously.

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 9 years ago


Weed need some Eliot Ness characters to come and clean this thing up.

Posted by Esko Kiuru about 9 years ago