ATLANTA – Cases of residential mortgage fraud reported by institutions in the home financing industry fell last year for the second year in a row, according to a study.
The LexisNexis Risk Solutions Mortgage Fraud Report released last week tracks verified instances of home loan fraud or misrepresentation by mortgage industry professionals, as reported by banks and other financial institutions.
The fraud could include a borrower falsifying information on loan documents but only if the borrower was conspiring with a mortgage industry professional.
The study found that mortgage fraud reports declined 35 percent between 2010 and 2011.
One factor in the decline is that mortgage loan originations sank to their lowest levels since 2001 last year, reflecting a sharp drop in sales of new and previously occupied homes.
Another is that fewer mortgage fraud schemes are taking place at the point where a buyer tries to get a home loan.
Mortgage fraud involving the buying or selling of homes in some stage of foreclosure is becoming more common, according to the FBI.
Mortgage fraud investigations by the FBI resulted in 1,082 convictions in fiscal 2011, the agency has said.
Loan application and home appraisal fraud and misrepresentation made up the largest category of fraud type being investigated by lenders last year, according to the LexisNexis study.
Among the trends identified in the report: instances where buyers and sellers potentially colluded in a home sale or purchase transaction are running at an elevated pace.
One red flag of collusion in a real estate transaction is when there is an undisclosed relationship between buyer and seller, or agent, which could potentially lead to a conflict of interest.
Unless disclosed, real estate transactions are expected to be arms-length, or with buyer and seller having no relationship to each other.
In 2011, lenders reported that transactions where such a relationship was not disclosed declined to 6.8 percent from 9.7 percent in 2010.
In years past, that percentage has been below 5 percent, LexisNexis said.