The news from Boston in mid-May was entirely too familiar to readers of business pages in local papers these days. Eleven individuals had been charged by the state's attorney general and federal authorities in a "large-scale mortgage fraud scheme."
The alleged perpetrators were very familiar with the workings of the mortgage industry. They included attorneys, mortgage brokers and real estate agents, all working together to get loans funded that would never be repaid. Some were local. Others operated in California and Florida. The 11 supposedly obtained more than $10 million in financing for "straw buyers," often using stolen identities.
In the indictment, U.S. attorney Michael Sullivan says that the victims are not only the mortgage lenders that were defrauded, but also the neighborhoods where mortgage fraud occurs. Foreclosures, vacant property and falling home values all are part of the credit mess that has been exacerbated by cases of fraud.
He might have added another victim to the list: mortgage servicers. Early payment defaults have been one of the industry's most vexing problems in recent years. And fraud, more often than not, is one of the factors when loans go sour so fast.
The Financial Crimes Enforcement Network has seen an increase in suspicious activity reports involving mortgage lending. While that usually means attempted fraud is rising, it may also signal greater awareness of fraud issues. FinCEN noted a marked increase in suspicious activity in 2005 and 2006, which fortunately has now leveled off.
But the suspicious activity increase earlier this decade outpaced growth in mortgage lending. Servicers need to be alert to suspicious activity. It may seem too late to worry about once a loan is on the books, but in truth the more a servicer knows about what happened at origination, the better positioned the servicer is to deal with that loan (and also with the originator who sent the loan to the servicing shop). (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/