In a recent Mortgage Loan Fraud Update, the Financial Crimes Enforcement Network (FinCEN) is reporting that Suspicious Activity Reports (SARs) related to Mortgage Fraud are declining. FinCEN was created in 1990 to support federal, state, local, and international law enforcement. FinCEN researches and analyzes SARs and other critical forms of intelligence to support financial criminal investigations. The ability to link to a variety of databases provides FinCEN with one of the largest repositories of information available to law enforcement in the country.
A Suspicious Activity Report is a report filed with FinCEN by a bank regarding suspicious or potentially suspicious activity. SARs have been instrumental in helping identify individuals, groups, and organizations involved in fraud, terrorist financing, money laundering, and mortgage loan fraud.
In 2012, FinCEN received over 69,000 Mortgage Loan Fraud SARs (MLF SARs) representing a 25 percent decline from 2011. This was the first time the number of MLF SARs reported to FinCEN had declined in more than 10 years. However, the statistic is somewhat misleading. Based on its analysis, FinCEN believes that the many of the 2011 and 2012 SARs are continuing to report activity that actually began in 2007 or earlier. As most local realtors will attest, 2006 and 2007 were the final years of the U.S. housing bubble and related loan originations.
FinCEN believes that many recent SARs are a consequence of mortgage repurchase demands made on the banks. Mortgages that originated during the housing bubble were, for the most part, bundled into mortgage pools or securities. When the mortgages later defaulted, the mortgage security holder could demand that the bank “repurchase” the mortgage based on fraud or other defects not detected at origination. After receiving a repurchase request, the bank may then file a “repurchase” SAR addressing fraud by individual borrowers that apparently existed, but was not caught, during the loan origination in 2006 or 2007.
In its update, FinCEN also noted the dramatic growth in the number of SARs referencing foreclosure rescue scams. FinCEN believes, hypothetically, that this growth may come from “greater opportunities to commit fraud within the distressed portion of the mortgage market, compared with the opportunities to commit fraud within new loan originations.” In other words, FinCEN speculates that many current SARs related to loan origination fraud are based on activity that took place in 2007 or earlier, while the current trend is toward more fraud in the foreclosure rescue business.
Bill Martin is a former B-52 and B-1 pilot and senior attorney for the Federal Deposit Insurance Corporation and is admitted to the U.S. Tax Court and Court of Federal Claims. He is currently a partner in the law firm of Keefe, Anchors & Gordon in Fort Walton Beach, Fla.