Magazine article American Banker

Fincen SAR Study Lists Vulnerabilities in Mortgage Fraud

Magazine article American Banker

Fincen SAR Study Lists Vulnerabilities in Mortgage Fraud

Article excerpt

Automated loan processing and subprime lending are among a handful of soft spots that leave banks vulnerable to mortgage fraud, according to a study the Financial Crimes Enforcement Network released Friday.

The study warned that the increased use of the telephone and the Internet to process applications leaves banks more vulnerable to fraud.

Fincen took a random sample of 1,054 suspicious-activity reports on mortgage fraud filed in a 10-year period and found the number listing the use of such technology jumped to 57 last year, from 4 in 2002. The number pertaining to subprime borrowers increased to 24 last year, from 3 in 2002.

"Filers reported a pattern of the use of exaggerated or fabricated income information associated with subprime loans," the study said. "Such activity may be part of added efforts by some lenders to qualify barrowers in the subprime market."

Fincen also cited a connection between identity theft and mortgage fraud. More than 2% of all SARs filed between Jan. 1, 2003, and March 31, 2006, on mortgage fraud also reported suspicion of identity theft.

Other soft spots identified in the study, titled "Mortgage Loan Fraud: An Industry Assessment based on Suspicious Activity Report Analysis," included broker-originated loans and elderly borrowers who are often exploited by fraudsters.

The study was part of Fincen's effort to assure the banking industry that the agency is making good use of the data it collects from banks.

According to the study, even though SARs on mortgage fraud have risen sharply over the past decade, the increase was most dramatic during the heady days of the housing boom. …

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