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Mortgage Loan Fraud Update

This section of The SAR Activity Review focuses on patterns of BSA reporting, specifically as it relates to mortgage loan fraud, as well as trends in how financial institutions file their BSA reports. Finally, this section also contains an analysis of calls received on FinCEN?s Regulatory Helpline.

This update to FinCEN?s prior Mortgage Loan Fraud (MLF) studies looks at filings during the first six months of 2009 and provides new information on subject roles and geographic locations. Two illustrations provide rankings by State and metropolitan areas for subject locations reported during this period. In addition, we provide information on the secondary activities reported along with mortgage loan fraud in the SAR filings.

Overall Filings
From January 1 to June 30, 2009, filers submitted 32,926 MLF SARs, less than a one percent increase over the 32,660 MLF SARs filed in the same period in 2008.2 The top 10 depository institution filers submitted 72 percent of the MLF SARs, up from 64 percent. Continuing a trend begun in Mid-2007 (Chart 1), the MLF SARs filed from January 1 to June 30, 2009, represent nearly 9 percent of all SARs filed during this period.3



Subjects of MLF SARs
Filers most frequently indicated the subjects of MLF SARs as ?borrower? or ?broker? relationships to the reporting institution, respectively accounting for 43 and 13 percent of subjects. Table 1 displays a list of reported relationships.4



In addition to these reported relationships, filers described numerous ?other? subject relationships to the filing institution. Table 2 provides general descriptions of the most common ?other? characterizations.5



Subject Locations
Ranked by total reported subjects, the top 10 States included: 1) California, 2) Florida, 3) New York, 4) Illinois, 5) Georgia, 6) Texas, 7) Arizona, 8) Michigan, 9) Virginia, and 10) New Jersey. The following graph, Mortgage Loan Fraud SAR Subjects, ranks each State or territory by totals of reported subjects. Table 3 provides a list of the top 50 metropolitan locations for MLF SARs, ranked by subject totals. Single subjects named in multiple SAR entries are counted for each mention. On average, less than eight percent of subject totals contained duplicates arising from the same name appearing multiple times. At the metropolitan level, the greater Los Angeles and Miami areas ranked first and second in terms of total MLF SAR subjects, with approximately 6,300 subjects each. Following these, the urban areas of New York City (4,500), Chicago (3,200), and the District of Columbia (2,200) had the largest number of MLF SAR subjects.






Secondary Activity Descriptions
Filers most frequently indicated false statements (28 percent) as a secondary activity to mortgage loan fraud, followed by identity theft (3 percent). Table 4 displays the number of reports indicating each secondary activity category.



In some MLF SARs, filers provided additional information about activities by using the ?Other? suspicious activity field. Table 5 provides a list of the most frequent types of ?Other? activities filers described in this field.



Filers
In the first half of 2009, approximately 735 financial institutions submitted MLF SARs, or about 50 more filers compared to the same period in 2008. The top 50 filers submitted 93 percent of all MLF SARs, consistent with the same 2008 filing period. However, MLF SARs submitted by the top 10 filers increased from 64 percent to 72 percent. Factors affecting this growth included institutional mergers and third party reviews by secondary market participants, credits enhancers and mortgage servicers. Chart 2 breaks down filing volumes by groups of top filers.



Federal Regulators
With respect to the volume of filings, institutions under the Federal supervision of the Office of the Comptroller of the Currency (OCC) filed the largest number of MLF SARs, submitting a combined 20,216 SARs (61 percent). Institutions supervised by the Office of Thrift Supervision (OTS) and the Board of Governors of the Federal Reserve System (FRB) together accounted for 33 percent of the reports; the remaining 6 percent came from institutions supervised by the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Authority (FHFA), and the National Credit Union Administration (NCUA). Chart 3 provides a breakdown of MLF SAR volumes by the indicated regulator.



With respect to filers, those indicating the FDIC as their primary Federal regulator comprised 36 percent of all MLF SAR filers from January to June 2009, an increase from 31 percent over the same period in 2008. Filers indicating the NCUA as their primary regulator increased from 14 to 16 percent, while those indicating the OCC were static at 16 percent. The proportion of filers supervised in 2009 by the OTS and the FRB (respectively, 17 and 14 percent) declined from the earlier period (respectively, 20 and 16 percent). Filers indicating the FHFA as their primary regulator accounted for less than 1 percent. Chart 4 provides a breakdown of filers according to primary Federal regulator.7

Conclusion
FinCEN will continue to monitor MLF SARs and report trends publicly in addition to the ongoing work in support of law enforcement investigations and prosecutions. In addition, we will be taking a more in-depth look at some of the activity trends reported in this article, such as secondary activities reported in addition to mortgage loan fraud.

2 The volume of SAR filings for the given period does not directly correlate to the number or timing of suspected fraudulent incidents, as explained in FinCEN?s March 2009 report, ?Mortgage Loan Fraud Connections with Other Financial Crime: An Evaluation of Suspicious Activity Reports Filed by Money Services Businesses, Securities, and Futures Firms, Insurance Companies and Casinos,? http://www.fincen.gov/news_room/rp/files/mortgage_fraud.pdf.

3 For more on information on 2007-2008 MLF SARs, see the February 2009 FinCEN report ?Filing Trends in Mortgage Loan Fraud,? at http://www.fincen.gov/news_room/nr/pdf/20090225a.pdf.

4 SAR Part II, 30a-l. Subject totals in this report represent total name variations without consideration for alternate spellings, aliases, identically named subjects, or those with multiple listed addresses. Subjects reported without listed addresses are not counted in geographically delineated totals.

5 SAR Part II, 30l.

6 More information about FinCEN?s efforts as part of the Federal-State partnership to combat loan modification fraud schemes can be found on the FinCEN website at http://www.fincen.gov/foreclosurerescue.html.

7 Chart 4 does not include the 1 percent of filers that were either under FHFA supervision or that did not indicate a primary federal regulator.

Excerpted from SAR Activity Review Issue 16, page 15

First published on 10/01/2009

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