Mortgage fraud on upswing

From the Philly Inquirer:

FBI dealt with more mortgage fraud

The number of mortgage-fraud cases investigated by the FBI almost doubled in the last three years, reflecting a problem that is “pervasive and growing,” the bureau said yesterday in its annual report on financial crimes.

The bureau said that its mortgage-fraud cases increased from 436 in 2003 to 818 in 2006, and it acknowledged that its caseload likely represented a small piece of the problem.

The FBI said mortgage fraud was difficult to track for a variety of reasons. For starters, the industry is not required to report fraud. Moreover, the sale of mortgage loans on secondary markets can “conceal or distort the fraud,” thereby reducing the number of cases reported.

“The true level of mortgage fraud is largely unknown,” the FBI report said.

The bureau said fighting mortgage fraud was a priority because of the impact of mortgage lending and housing on the broader economy.

Recently, shares of companies that lend to subprime borrowers – people with blemished credit histories – have been battered as delinquencies, and foreclosures have increased in the subprime-mortgage market. Britain’s HSBC Holdings P.L.C., the world’s third-largest bank, said earlier this week that its bad-debt charges had increased 36 percent in 2006.

The bureau’s report said mortgage fraud comes in two broad varieties: “fraud for profit,” which is largely committed by industry insiders and involves practices such as falsely inflating property values, and “fraud for housing,” which is committed by borrowers and involves actions such as acquiring houses under false pretenses.