FinCEN: Suspected Mortgage Fraud Activity Falls in 2012

According to FinCEN, 7% of all SARs filed in 2012 indicated mortgage fraud. Credit: Crime © Lucian Milasan - Fotolia.com

Financial institutions filed 25% fewer mortgage loan fraud suspicious activity reports in 2012 than the previous year, according to data from the Financial Crimes Enforcement Network.

From January 2012 to December 2012, there were 69,277 MLF SARs reported compared to 92,561 throughout the year before. FinCEN said CY2012 was the first year since the bureau of the Department of Treasury began reporting mortgage fraud SAR statistics that the number of MLF reports decreased on an annual basis.

Overall, the total number of SARs filed for the year was 867,990, a year-over-year increase of 9%. According to FinCEN, 7% of all SARs filed in 2012 indicated MLF as an activity characterization, down 12% on a yearly basis.

FinCEN cited the CY2012 decline back to an unusual spike in MLF SAR filings that occurred in 2011 primarily due to mortgage repurchase demands on banks. These repurchase demands caused mortgage loan origination and refinancing documents to be reviewed and the financial institutions noticed fraud, which was then reported.

Furthermore, FinCEN also noted in its report that 46% of all the mortgage fraud reports it received in the last decade were filed during the last years.

“Suspicious activity is often only recognized and reported years after loan origination, after a review of origination documents is prompted by a loan default, repurchase demand, or other factors,” FinCEN said. “As a result, many mortgage fraud SARs are filed much later than the date that the suspicious activity actually began.”

For example, in 2012, 57% of MLF SARs FinCEN received referenced possible fraudulent activity in 2006 and 2007, the years immediately preceding the financial crisis. In the prior year, only 26% of reported MLF activities commenced more than five years before filing the report.

During this time, depository institutions filed 37,457 MLF SARs in 2006 and 52,862 in 2007.

“At the time, those numbers represented huge increases over previous years, but they seriously underrepresented the amount of suspicious mortgage fraud activity that could have potentially been reported in those years if the suspicious activity had been detected closer to loan origination,” FinCEN added.

In CY2012, 84% of MLF SARs involved suspicious activity amounts under $500,000, FinCEN noted. Also, only 21% of reported disclosed loss amounts, with the majority of these for less than $500,000.

Similar to the prior year, California was the number one ranked state for MLF subjects per capita and in total MLF SAR volume for CY2012. Behind California rounding out the top five in per capita rankings was Nevada, Florida, Arizona and Washington DC.

FinCEN noted that Hawaii, which occupied the second spot last year on per capita rankings, dropped to 15th in CY 2012.

Additionally, the number of mortgage loan fraud suspicious activity reports filed in 2012 that had the term “foreclosure rescue” as its narrative was 4,427, up 58% from the previous year despite an overall decline in MLF SAR filings.