Report: Md. remains a top state for mortgage fraud
Maryland appears on a variety of top 10 lists. Household income. Advanced degrees. And, unfortunately, mortgage fraud.
Nationwide reports of fraud and "material misrepresentation" by industry professionals, sent to the LexisNexis Mortgage Asset Research Institute and ranging from falsified tax returns to bogus appraisals, dropped substantially between 2009 and 2010. But the report's authors note that other measures suggest fraud hasn't fallen at all. The schemes are getting harder to ferret out even as there are fewer resources to do the ferreting, they say.
Here are the top 10 states:
2. New York
4. New Jersey
Another risk-mitigation company, Interthinx, shared statistics for the Baltimore metro area that show the region just a bit higher than the country overall for mortgage fraud risk. But while risk has been easing slightly nationwide by Interthinx's measure, it's rising here. The biggest issue is property valuation.
"Flopping" is in that category. That's when a real estate agent runs or aids a scheme in which a short sale or foreclosure is fraudulently sold for less than market value so it can be quickly resold at a profit. The LexisNexis researchers say banks are relying on "broker price opinions" to determine value, and in some cases agents are misrepresenting value through BPOs to make a buck.
Ann Fulmer, vice president of business relations for Interthinx, said you'll often find that "exposure to the market is manipulated" so buyers who aren't in on the fraud can't get a shot at the property.
Sometimes the home pops up on the multiple-listing service and is immediately listed as under contract, she said. "Or, there’s a sketchy description, there’s no photo; it’s really a half-hearted effort to expose the property to the market," she said. In one case, a property was listed on the multiple-listing service for the wrong city.
Such crimes don't just affect the financial industry. The previous homeowners are victimized, too, she said.
"That increases the borrowers' liability to the bank under a deficiency judgment," Fulmer said. "While the banks themselves tend not to want to collect that, they do sell it to debt collectors. That's one of the sort of hidden damages there -- that the borrower who gets caught up in that could end up with a bigger tab at the end."
And for loans involving FHA, Fannie Mae or Freddie Mac, there's another victim to think about.
"To the extent that money's being left on the table, that's coming out of the pockets of taxpayers," she said. "Excuse me, I take personal offense at that."
Another thing to think about is what Fulmer calls "the fraud contagion effect." Whether it's flipping in a booming market or flopping in a declining market, there's a ripple effect on values.
"Let's just suppose you have a property that's actually worth $100,000, but through nefarious machinations, somebody manages to pick it up for $70,000, and that goes on the books," she said. That $70,000 price gets reported in the multiple-listing service, recorded in the land records. Other people doing appraisals and broker price opinions "see these figures and say, 'Wow, I thought this house was worth $100,000, but maybe not.' It contributes to the incremental devaluation of neighborhoods over time."