Filings on Mortgage Brokers

A growing number of SARs report that mortgage brokers initiated the fraudulent
loan applications. Filers are increasingly listing mortgage brokers as subjects in
these SARs.
Figure 1 depicts a three year growth trend for total mortgage fraud comparing SAR
filings and those reporting mortgage brokers as subjects. SARs reporting mortgage
brokers as subjects comprise over one quarter of the total mortgage loan fraud SARs
filed for the period between April 1, 2006 and March 31, 2007.
Figure 1
Reports of fraudulent appraisals continue to increase in SARs reporting mortgage
loan fraud. Filers of nearly 13% of the narratives sampled for this report suspected
appraisers as participants in the reported fraud. This represents an increase of two
percentage points from the 11% reported in the 2006 FinCEN Mortgage Loan Fraud
As the Occupation of the Subject report. All fraudulent flipping6 and nearly all other organized fraud schemes that
were reviewed relied on fraudulent appraisals. A small number of sampled narratives
reported the fraud was conducted through the theft of licensed appraisers’
identity and license information. The increase in reporting of appraisal fraud and
theft of licensed appraiser information underscores the value of independent verifi-
cation of appraisal documentation.
Vulnerabilities in Specified Mortgage Products
Although many SAR narratives did not identify the mortgage product involved in
suspected mortgage loan fraud activities, some associated trends and vulnerabilities
were deduced from those narratives that did specify the mortgage product. A small
number of narratives specified that loans were subprime.7
Trend for Suspected Fraud in Cash-Out Refinance Loans
Filers identified “cash-out refinance loans”8 in 3.35% of the SARs reporting suspected
mortgage loan fraud filed between April 1, 2006 and March 31, 2007. Over
the past six years, the study revealed a significant growth in the number of depository
institution SARs reporting suspected fraud in these loan products. There was a
nearly 53% increase in suspected fraud in these loans between 2005 and 2006.
Property Flips: Property is purchased, falsely appraised at a higher value, and then quickly sold.
What makes property flipping illegal is that the appraisal information is fraudulent. The schemes
typically involve fraudulent appraisals, doctored loan documents, and inflation of the buyer’s income.
For the period April 1, 2006 through March 31, 2007, 79 SAR narratives (0.19% of total filings)
specified suspected fraudulent loans were subprime. Other SAR narratives do not provide
sufficient details to make this determination.
A cash-out refinance loan is a refinanced loan granted for an amount greater than what the borrower
owes on the prior loan. The additional amount of the refinance is funded by existing equity.