Is FBI's Mortgage Fraud Estimate Far Too Low?

The Federal Bureau of Investigation's estimate that mortgage fraud costs the lending business $1.2 billion a year is off the mark by more than $3 billion, according to a fraud analyst speaking at the Midwinter Conference in Park City, Utah.And others say the FBI's calculation could be shy by more than that. The FBI's calculation is based on Suspicious Activity Reports that it receives from lenders and others who think they may have been cheated in one way or another. But Arthur Prieston, chairman of the Prieston Group, a California firm that offers integrated fraud protection, loss mitigation, and insurance services, puts fraud losses at $4.4 billion annually. He bases that figure on his firm's claims data for clients represented by its legal services affiliate, the American Mortgage Law Group, which chases down fraudsters. And he says the loss severity is at least 50% greater for lenders that are not insured and don't chase down perpetrators. At the same time, a former fraud detection specialist who asked to remain anonymous because he no longer works in the field said the annual take as a result of mortgage fraud is more like $6 billion and growing. He said "fraud for commission," in which originators will "do anything" to earn a fee, is just as prevalent as fraud for profit. "It's pervasive throughout the industry," the source said. "It's growing because the accountability is not there. If they do it and get away with it, they do it again."