A new study released by the Mortgage Asset Research Institute found that reports of mortgage fraud rose 26% in 2008, even as loan dollar volume fell by about one-third.
Foreclosure-related fraud schemes are on the rise, which is no surprise given that enormous increase in distressed home owners.
USA Today has more details on the breakdown of the results, but it's hard to know exactly what to make of these studies that are coming out on mortgage fraud. As lending standards tighten and buyers are required to have, gasp, down payments, it seems likely that actual incidents of mortgage fraud are on the decline.
Many of the quick buck, inexperienced fly-by-night mortgage brokers are out of the business, and the level of due diligence conducted by lenders is way up. But back in the days of double-digit real estate appreciation, there was no real need to complain about mortgage fraud: If the borrower went into default, you could sell the home for enough money to avoid taking a big beating. So mortgage fraud incidents were probably far higher than they were reported. Now that homes are declining in value, lenders have every incentive to scream "mortgage fraud!" every time a loan goes into default and they're left with a property worth far less than they're owed.
The FBI is devoting more resources to cracking down on mortgage fraud, which is a good thing for consumers: Record mortgage fraud and lax lending during the real estate bubble allowed people to buy homes with funny money -- inflating home values and making it harder for honest people to afford the American dream.
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