Lenders are getting smarter about uncovering fraud before putting bad loans on their books, according to the latest figures from the Financial Crimes Enforcement Network.
In two out of every five suspicious activity report narratives submitted to FinCEN, the filing lender turned down the would-be borrower's application, whether it be for a new mortgage, a short sale, or a debt elimination, because it suspected fraud.
In releasing the agency's full year 2011 update on mortgage-related SARs at the Mortgage Bankers Association's National Fraud Issues Conference in Phoenix, FinCEN Director James Freis noted "significant improvement" in lenders' due diligence since the height of the housing bubble.
The latest report "shows we're seeing financial institutions spotting activity that appears to be fraud before it happens and in the process helping to prevent it," Freis said.
The full-year report shows that financial institutions submitted just over 92,000 mortgage fraud SARs in fiscal 2011, a 31% increase over the nearly 70,500 reports submitted in fiscal 2010. But the increase is attributable largely to mortgage repurchase demands.
Freis told the MBA that SARs "are the single most consistent source of leads" that law enforcement officials use to track down fraudsters. "They make a difference, day in and day out," the FinCEN director said.
But Michael Stephens, the principal deputy inspector general at the Federal Housing Finance Agency, said lenders and their employees shouldn't use the suspicious activity reports as a substitute for the personal responsibility they share in turning in bad actors when they see them.
"When you see something wrong, when you see something that doesn't look right to you, you need to contact law enforcement," Stephens told the meeting, noting that every American has felt the sting of housing market meltdown, whether they have a mortgage or not. "It's your obligation."
