Mortgage fraud on the rise

North America

The cost of mortgage fraud in the US is likely to reach $2.5bn in 2008 and will continue at that rate for several years afterwards, according to new research from risk advisory and consultancy firm, TowerGroup. The firm says that the significant rise in mortgage fraud over the past 10 years has in recent months been obscured by falling home prices and inappropriate mortgage underwriting. For example, TowerGroup notes that the growth rate in filings of Suspicious Activity Reports (SARs) related to mortgage fraud rose to 56% annually between 2002 and 2007 from its previous average of 26% annually from 1996 to 2002. TowerGroup anticipates that lenders will respond by deploying technology tools to assist in the detection and prevention of mortgage fraud and that their annual spending on such tools will reach several hundreds of millions of dollars in the next few years. Much of the growth in mortgage fraud has been due to the ever-increasing sophistication of fraudsters’ schemes to fabricate the values of mortgaged property. David Hamermesh, senior analyst in the Consumer Lending research service at TowerGroup, advised lenders to invest in analytical tools to identify loans at a high risk for fraud. He also warned that technology vendors must do more to improve the predictive power of the analytical tools they provide.