Mortgage Fraud Suspicious Activity Reports Rise, FinCEN Reports

Suspicious activity reports (SARs) indicating mortgage loan fraud climbed 7%, rising to 35,135 in the first half of this year, compared with 32,926 in the first half of 2009, the Financial Crimes Enforcement Network (FinCEN) reports. In part, the increase can be attributed to increased attention to older loans spurred by repurchase demands, according to FinCEN, which released two reports dedicated to mortgage loan fraud SAR filings this week. The two reports cover SAR activity from January through June.

In the first quarter, 78% of reported activities occurred more than two years prior to filing, compared with 44% in the same period of 2009, showing a continued focus on loans originated from 2006 to 2008.

"SARs are one of the most important sources of lead information for mortgage fraud investigations available to law enforcement," says FinCEN Director James H. Freis Jr. "As a member of the president's Financial Fraud Enforcement Task Force, FinCEN remains active with law enforcement and other partner agencies in the task force to provide lead information and to identify potential abuses in order to combat mortgage loan fraud."

Last week, FinCEN proposed a requirement for nonbank lenders and originators to comply with SAR regulations. Under current regulations, banks and insured depository institutions are the only mortgage originators required to file SARs.

The agency's latest reports additionally show that references to bankruptcy in SARs have steadily increased, rising to 7% of mortgage loan fraud SAR filings this year, compared to 1% in 2006 and 2007.

SAR reports referencing "short sale" and "broker price opinion" (BPO) appeared 827 times and 41 times in SARs, respectively, during the first quarter. Short sales and BPOs mentioned in SARs are sometimes associated with a particular type of flipping scheme known as "flopping." Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference.



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