Trends and Patterns in Total SARs Reporting Mortgage Loan Fraud

SARs reporting suspected mortgage loan fraud continue to increase. This study includes SARs reporting suspected mortgage loan fraud filed between April 1, 2006 and March 31, 2007. Figure 7 below provides a graphic depiction of the filing trend of SARs reporting suspected mortgage loan fraud.



A comparison of SARs reporting suspected mortgage loan fraud for the first quarter of 2006 to the first quarter of 2007 revealed a growth of 36.79%. Figure 8 provides this comparison.



Growth in SARs reporting mortgage loan fraud continues to outpace the growth of total depository institution SARs. Figure 9 provides the percentages of growth for all depository institution SARs and depository institution SARs reporting mortgage loan fraud while Figure 10 provides a graphic depiction of the growth.






Characterizations of Suspicious Activity

Many reports included more than one characterization of suspicious activity in addition to mortgage loan fraud.21 False statement was the most reported suspicious activity in conjunction with mortgage loan fraud. Figure 11 reveals secondary characterizations of suspicious activities reported in conjunction with mortgage loan fraud and compares this to percentages from the preceding ten years. Reports of identity theft doubled from 2% to 4% of the SARs filed. Although the overall numbers of reports were small, computer intrusion also saw a significant percentage increase.




Primary Federal Regulators

Figure 12 displays the primary federal regulators identified in the reports of mortgage loan fraud.24 National banks with offices located throughout the country made up the largest group of lenders reporting mortgage loan fraud. The Office of the Comptroller of the Currency (OCC) is the primary regulator for national banks. National banks filed about a third of the total reports.



The Office of Federal Housing Enterprise Oversight (OFHEO) is the federal regulator for two government sponsored enterprises ? Fannie Mae and Freddie Mac. In 2006, OFHEO adopted a final rule which established a process for the enterprises? reporting of possible mortgage fraud to OFHEO and corresponding reporting to FinCEN. As this process continues to develop, FinCEN will continue to monitor these filings for developing trends.



Top Filing Institutions

In all, 788 depository institutions and their subsidiaries filed 40,781 SARs on suspected mortgage loan fraud (6.8% of total SARs filed in the same period) during the period April 1, 2006 through March 31, 2007. The top 10 filers that listed mortgage loan fraud as a category account for 61% of these SARs, while the top 25 filers account for 87% of the total.

Fraud Locations

SARs contain data fields for subject addresses, the filer?s main office address, and the filer?s branch address where the suspicious activity was discovered. Because the subject address provides the best source for identifying geographic locations of real estate involved in mortgage loan fraud, this study identified the location of the fraud by the subject address. This is because most residential mortgage loan applicants intend to reside on the property used to secure the loan. In the SARs reviewed in this study, suspicious activity occurred in, or was otherwise associated with, all 50 states, the District of Columbia, Puerto Rico, and American Samoa.

Figure 13 provides the top 20 subject states by the number of depository institution SARs filed in 2006 along with a comparison to the 2005 filings and the percentage of change for the two years. Figure 13 also provides the per capita income and state ranking for those 20 states based on per capita income. The top five reported subject address states were California, Florida, Illinois, Georgia, and Texas. This represented a change in position from the initial report where the top five subject address states were California, Florida, Georgia, Texas and Illinois. Illinois moved from fifth position to third and Georgia and Texas moved from third and fourth to fourth and fifth positions. New Jersey, Arizona and Ohio replaced Ohio, North Carolina and Washington in the seventh through tenth positions, respectively. Note that twelve of these states were ranked within the top twenty U.S. per capita income states.




Figure 14 provides the percentage of change in reporting for all subject states along with data from the U.S. Department of Commerce, Bureau of Economics reporting the per capita income and state rankings for 2006 (projected). Although Alaska had only 38 SARs reporting mortgage loan fraud in 2006, it was the state with the largest growth in reports of mortgage loan fraud by percentage increase. States with negative growth included South Dakota, Iowa, Vermont, South Carolina, New Mexico, and Kansas. Eleven of the twenty states showing the greatest increase in reported subjects were ranked within the top twenty states for per capita income.

Fraud Locations








MAPS
The maps above depict the volume of SARs identifying subject states associated with suspected mortgage loan fraud for 2005 and 2006.

Individual Taxpayer Identification Number (ITIN)

Filers reported an increase in the number of borrowers that provided ITINs,28 often represented as SSNs, on mortgage loan applications. Figure 15 displays the growing number of suspected mortgage loan fraud SARs reporting individuals who are associated with an ITIN.



Figure 16 provides a graphic depiction of the filing trend for reports of individuals associated with both an ITIN and a SSN.



21 In our examination in mortgage loan fraud SARs, we identified 69 SARs with multiple activity characterizations that contained one or more mischaracterizations of financial crimes, including primary activities and those secondary to mortgage loan fraud. As the full 69 only reflect about onetenth of one percent of all mortgage loan fraud SARs, the errors are not statistically significant.

22 In our examination in mortgage loan fraud SARs, we identified 69 SARs with multiple activity characterizations that contained one or more mischaracterizations of financial crimes, including primary activities and those secondary to mortgage loan fraud. As the full 69 only reflect about onetenth of one percent of all mortgage loan fraud SARs, the errors are not statistically significant.
Approximately half of the 30 reports characterized as mysterious disappearance appear to be mis>
23 Although twelve SARs listed terrorist financing in conjunction with mortgage loan fraud, a close review of those SARs revealed that all these reports were mischaracterized.

24 Some SARs did not indicate the primary regulator.

25 This table shows the total number of SARs per state, where the SARs included the subject?s address within that state. As some SARs indicate subjects in two or more states, these particular SARs may be counted multiple times in this table. Total state filings when listed by subject, as here, do not match the total number of SARs filed for the reviewed period.

26 Per capita income and state ranking obtained from the U.S. Department of Commerce, Bureau of Economic Analysis, www.bea.gov/index.htm.

27 Per capita income and state ranking obtained from the U.S. Department of Commerce, Bureau of Economic Analysis, www.bea.gov/index.htm.

28 An ITIN is a nine-digit number issued by the U.S. Internal Revenue Service (IRS) to individuals who are required for U.S. tax purposes to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a social security number (SSN). See IRS Discussion of ITINs at http://www.irs.gov. For additional compliance guidance, see The SAR Activity Review: Trends, Tips & Issues, Issue 11, Section 4, ?Tips on SAR Form Preparation and Filing,? at http://www.fincen.gov/sarreviewissue11.pdf.

29 Totals for November and December 2007 may not be complete due to processing.

Excerpted from Mortgage Loan Fraud: An Industry Assessment based upon Suspicious Activity Report Analysis - April 2008, page 35