Mortgage lending fraud on the rise

Mortgage lending fraud peaked in 2006, fell to a low in early 2009, and now has rebounded by more than 20 percent, CoreLogic says.

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    Former financial Resources Mortgage president Scott Farah (left) walks with his lawyer in Concord, N.H., after he pleaded guilty to fraud charges in exchange for a reduced prison sentence Oct. 4. After falling to a low in 2009, mortgage lending fraud is one the rise, a new report says.
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The rate of mortgage fraud in the U.S. has accelerated since falling to a low early last year, with sales of foreclosed homes among the most likely to involve fraud, according to a report by housing and financial data firm CoreLogic.

Mortgage lending fraud activity peaked in 2006 at a rate of 109 and then tumbled to a low of 68 in early 2009. But as of the second quarter of this year, it had increased by more than 20 percent to a rate of 82, CoreLogic said Wednesday.

The firm analyzed 7 million loans issued from the first quarter of 2005 through the second quarter of 2010.

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The increase in reported fraud by lenders comes as borrowers have shifted toward higher-risk, high volume loan programs, including the Home Affordable Refinance Program, and foreclosed resales have become more common, the firm said.

"Fraud continues to shift to areas of the lending business where large volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place," said Tim Grace, a senior vice president at CoreLogic.

Fraud risk associated with refinancing has climbed about 30 percent since early 2009, while one in every 24 foreclosure sales was associated with a fraudulent transaction, the firm said.

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