The Mortgage Asset Research Institute of the US reported that mortgage fraud has been on the rise with a dramatic increase of 26% in the last year even though fewer loans were issued. The study, prepared for the Mortgage Bankers Association and published on 17th March 2009, concluded that fraud is more prevalent now than it was at the height of the lending boom.
Canadians may be alarmed by such reports. After all, many of our economic problems originated in the States. But a closer examination of the data can give comfort - depending on who you are. Even assuming the accuracy of the report, remember that there are lies, damn lies and statistics.
When I see a statistical increase, I question if it is caused by an increase in activity or by an increase in detection. But even this approach overlooks a critical issue: an examination of the activity.
In the case of US mortgage fraud, the Institute reported that fraud is on the rise because of more aggressive reporting by lenders and also because the tighter lending climate has tempted borrowers and real estate industry professionals to act illegally. For example, the most common fraud, accounting for 61% of all cases reported in the study, is misrepresentation of income and other key facts on the mortgage application. Other frauds include falsifying tax returns and property appraisals.
When consumers think about mortgage fraud, many fear that a stranger could steal their identity and sell their home or borrow money against it.
As the Institute’s findings reveal, when you look behind the headlines, most mortgage frauds are committed against the lender, not against the homeowner. If you do not represent the bank, this news might be the silver lining of a dark cloud. The increase in mortgage fraud does not represent an increased threat to honest homeowners.