Incidents of residential mortgage fraud increased last year, a sign that scammers are still targeting the industry despite more diligent efforts to find and report such activity.
The number of mortgage fraud reports among loans made in 2009 grew 7 percent, a smaller increase than the 26 percent jump seen the previous year, according to a study released Monday by the LexisNexis Mortgage Asset Research Institute.
Since the housing boom, lenders have tightened their underwriting standards, requiring larger down payments, stronger credit histories and reliable proof of income. Law enforcement agencies also have created investigative teams to fight mortgage fraud. These efforts should make it harder for consumers and industry professionals to commit mortgage fraud.
The slower growth rate is being attributed to better reporting and policing for fraud activity, but there's more to it. The report also said more scammers are using technology to access information and allow them to remain anonymous by using the Internet.
"It remains critical for those in the mortgage industry to reassess their processes, work together by sharing information and reporting incidents of fraudulent activity, and ready themselves for more complex schemes in order to continue the fight against mortgage fraud," said Denise James, a co-author of the report.
Among states, Florida moved into the top spot for mortgage fraud, displacing Rhode Island, which led the nation in 2008 but dropped out of the top 10 rankings in 2009. Florida had nearly three times the expected amount of reported mortgage fraud for the volume of loans created there.
New York, California, Arizona and Michigan completed the top five states for mortgage fraud. Eight of the top 10 states are in the eastern half of the U.S.
Rhode Island wasn't ranked in 2009 because the state's sample size did not meet the minimum requirements set for the survey, the institute said.
As for the types of fraud, misrepresentation of information on mortgage applications accounted for 59 percent of reported incidents. Fraud related to appraisals was second, increasing to 33 percent last year from 22 percent in 2008.
Other types of fraud included verifications of deposits or employment, escrow or closing costs, and credit reports.
Despite increased reporting efforts, mortgage fraud "is significantly understated, even during times of massive origination volumes," said Jennifer Butts, manager of data processing for the institute.
The information collected in the 12th annual report comes from about 600 mortgage companies.