Florida Mortgage Fraud Tops in U.S.

Florida once again is the national leader in mortgage fraud.
“It’s really embarrassing,” said Greg Hallam, president of the Mortgage Bankers Association of Florida, which has more than 120 member companies.

The number of cases reported by Florida mortgage lender groups jumped by 43 percent from 2005 to 2006, according to a national study released Wednesday by the Mortgage Asset Research Institute.

The surge propelled Florida’s mortgage-fraud rate from fourth-highest to first - the fourth time the state has held the top spot in the annual report’s nine-year history.

He and others in the industry said an unprecedented boom and subsequent slowdown in the Florida housing market is behind the surge in fraud.

As values skyrocketed in 2004-05, more people sought to cash in through inflated appraisals, exaggerated incomes and other fraudulent Florida refinance activity.

More Florida mortgage lenders also relaxed their lending standards and practices, making them more vulnerable to fraud.

“There’s always been a lot of fraud and misrepresentation in the Florida housing market, but a lot of it was masked by appreciation” in property values, said Merle Sharick, one of the report’s authors.

But when values began dropping and mortgage foreclosures started rising in 2006, lenders began taking a harder look at their portfolios - and finding more fraud.

That likely will continue through this year, a local mortgage lender predicted.

“Unfortunately, I think we’re going to be seeing more of it,” said Pete Minarich, a vice president and senior lending officer for CTX Mortgage Co. in Bradenton. “I think it’s going to get worse before it gets better.”

The report’s authors agree, citing data that early mortgage defaults - those that become delinquent within 90 days of the home loan origination - is rising.

The bad credit Florida home loan industry’s collapse also “does not bode well for fraud in the coming year,” the report said.

To combat the embarrassing rise, industry officials in Florida are hoping to emulate Georgia, which had the highest fraud rate in 2002-05 but improved to fourth last year after launching a crackdown.

A bill awaiting Florida Gov. Charlie Crist’s signature would give state regulators more power to combat mortgage fraud through increased fines and tougher criminal penalties.

It also would allow local law enforcement agencies to investigate Florida mortgage improprieties, which typically has been the FBI’s domain.

At the national level, the industry is petitioning Congress to allocate more than $31 million over five years to fight mortgage fraud. The money is enough to hire 30 FBI agents and two federal prosecutors to focus on the crime.

The U.S. Attorney’s Office in Tampa is not prosecuting any mortgage fraud cases originating in Manatee or Sarasota counties, spokesman Steve Cole said.

But Taya Parodo, a former Bradenton title insurance agency owner, on April 26 became the fifth and final person of a local fraud ring to enter federal prison.

• The national study is based on a collaborative database the mortgage industry uses to share information on fraud.
• The number of reports to the database in 2006 was 30 percent higher than in the previous year, the study said.

SOURCE: Bradenton Herald