According to
The Mortgage Asset Research Institute (MARI), Rhode Island ranked No. 1 in the nation for mortgage fraud last year. This came as quite a shock because Rhode Island has never even ranked in the top 10, although their revised figures now place us at No. 5 in the nation for 2007. MARI is a service of the information firm LexisNexis, and bases their report on data submitted by lenders, bankers and insurers. MARI officials said that improvements in fraud-detection technology and increased vigilance among lenders, bankers and insurers probably account for some of the increase, both locally and nationwide. Lenders were processing loans so quickly in the boom that underwriting standards were often compromised, and higher prices tempted borrowers to commit fraud in order to qualify for a mortgage loan. Many seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit. Here is the breakdown as to the types of Mortgage fraud perpetrated in Rhode Island:
- 31% involved a fraudulent application
- 38% involved appraisal or valuation fraud
- 23% false financial statements
- 15 % verification of deposit fraud
- 8 % closing documents
- 8 % a false credit report
The majority of Rhode Island cases involve artificially inflated appraisals. These appraisals may result in purchases of homes by people who cannot service the mortgage debt, leading to foreclosures, in fact, it would appear that fraud and foreclosures rose hand in hand. Mortgage fraud is often like a Ponzi scheme with one buyer profiting off of the investment of the next buyer. The last buyer left holding the mortgage, (typically much larger than the property is actually worth) often has no other option than to walk away and let the property go into foreclosure.
This Weeks Real Estate Insight: March 2008: 406 people across the United States were arrested for mortgage fraud as part of a sting carried out by the FBI. Those arrested included buyers, sellers and mortgage lenders.
June 2008: According to then Attorney General Michael B. Mukasey there was no need for federal investigation into mortgage fraud, saying that investigations were best handled by local authorities, even though most mortgages are originated by lenders who are federally-regulated, over which state authorities have little if any jurisdiction. Perhaps if Mr. Mukasey had been a little more diligent, this crisis could have been mitigated.
