Editorial: Florida Home Loan Fraud Must Be Curtailed

“If mortgage fraud were an automobile race, the 2006 figures show Florida, California and Michigan as leading the race.” - Mortgage Asset Research InstituteSure, it’s fun to be No. 1. Robert Trigaux of the St. Petersburg Times has to admit. Florida crows about it every chance it gets. First in job growth. First in spring breakers.

But first in mortgage fraud?

We ought to be ashamed, but add Florida mortgage fraud to our trophy wall of top finishes. Last week, the Mortgage Asset Research Institute crowned the Sunshine State as tops, surpassing perennial winner Georgia.

Sadly, it makes sense.

History shows that red-hot housing markets are open invitations for fraud opportunities ranging from inflated house appraisals to doctored Florida home loan applications and income verifications.

As long as home prices are soaring, nobody really cares because everybody gets a profitable piece of the pie in an appreciating market.

But the faster they rise, the harder they fall. In a declining Florida housing market, fraud is more easily and rapidly exposed.

Readers of the Times may have, not surprisingly, noticed how mortgage fraud stories are on the upswing. Investigative reporter Jeff Testerman recently chronicled the capture and sentencing of up to 54 years of mortgage fraud mastermind Matthew B. Cox.

Times senior correspondent Susan Taylor Martin examined the suspicious deals handled by loan officer Victor Clavizzao in which a home would be flipped at inflated prices several times in a year despite a sluggish market.

The FBI confirms it’s investigating mortgage fraud in Pinellas County.

Mortgage Asset Research Institute, which tracks mortgage fraud for the home-lending industry, said Florida soared to No. 1 in 2006.

But it was also Georgia’s concerted efforts to reduce home loan fraud within its borders that allowed Florida’s northern neighbor to fall to a nicer No. 4 in the latest rankings.

There’s a message here. Florida can get a grip on its rampant fraud - if the state and the lending, real estate, appraisal and title industries really want to.

The fraud report does wave a few red flags for the future:

- The shakeout of the subprime lending market which caters to higher-risk borrowers, the most vulnerable to fraud, has several years to go.

- The end of the housing boom means more real estate and Florida mortgage company workers will be competing for the smaller, remaining business.

- While most folks are honest, some Florida mortgage brokers and lenders will likely continue to try to make unqualified borrowers look much more qualified than they are.

“When these conditions are coupled with a regulatory environment (in most U.S. states) where fraud perpetrators face light penalties, the conditions are temptingly ripe for escalated mortgage fraud activity,” the report warns.

Next year, let’s not be No. 1.

SOURCE: St. Petersburg Times