Report Links Defaults and Foreclosures to Borrower Fraud

The ongoing search for foreclosure culprits recently found blame in an unlikely place. An FBI mortgage fraud report linked up to 70% of early payment defaults to borrower misrepresentations on mortgage loan applications.

According to Jay Meadows, CEO of Rapid Reporting here, a national provider of fraud-preventing income and identity verification products and services, the study findings highlight the roots of the problem.

"While it would be naive to assume that we could narrow the cause of every foreclosure down to one single factor, this FBI information clearly indicates that borrower fraud plays a significant role in the record number of defaults and foreclosures we've been seeing over the past couple of years," he said.

"Now that lenders know one of the leading causes of defaults and foreclosures, they can move forward into a solution."

Mortgage fraud costs lenders an estimated $4 billion per year and identity theft is the fastest-growing segment in the fraud arena. Up to 60% of all mortgage fraud "involves income or identity misrepresentation by the borrower," and according to the FBI, often involves the willful participation of an industry "insider" or other professional.

The new data are expected to assist lenders with preventive insight that could help avoid costly mortgage defaults and foreclosures. Lender-operated fraud prevention programs may help against mortgage fraud, "the fastest-growing white collar crime in the country," the report said. The study found that mortgage defaults were largely concentrated in adjustable-rate mortgage loans, but were present among other loan types, too. The report also revealed that seven of the top 10 states with the highest concentration of mortgage fraud were also in the top 10 states for foreclosures, namely California, Florida, Georgia, Indiana, Michigan, Ohio and Texas. "There's no denying the detrimental impact of mortgage fraud upon the industry, but with the right fraud prevention program, lenders can proactively protect themselves from falling prey to this rapidly growing crime," Mr. Meadows said.

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