Utah ranked fifth in the nation for the number of reported mortgage fraud cases in 2006, according to a new report by the Mortgage Asset Research Institute.
Florida ranked No. 1, the report said, followed by California, Michigan and Georgia. Utah ranked No. 7 last year.
The fraud index is based in part on the number of fraud incidents reported to MARI by mortgage lenders and others when they suspect fraud. The index is based on total incidents reported by each state and not the dollar amounts of those mortgages.
The number of suspicious-activity reports nationally in 2006 jumped to 28,372 incidents, up from 25,989 reported in 2005.
"This increase is partially a result of lenders finding and reporting more cases of fraud from their 2006 loan originations," the report noted. "The cooling of real estate markets this past year has also helped reveal cases which strong price appreciation has masked during the past few years."
The most common types of mortgage fraud, the report said, involved misrepresentations of employment history and claimed income.
Derek Miller, director of the Utah Division of Real Estate, said he will hire a full-time investigator to focus specifically on mortgage fraud.
Miller said a common fraud committed by Utah homebuyers involves claiming "owner occupancy" on investment homes.
"When you are the primary resident in a home, the bank is going to give you a better interest rate than when it's an investment or rental property," Miller said. "What we find happening is way too many people who already own a home and want to buy a spec home, a rental home or an investment property, they go in and get their mortgage and they say, 'Yeah, I'm going to live in this home. It's going to be my primary residence.' Well, they already have a primary residence."
For subprime loans, Utah ranked second nationally in fraud levels, up from No. 3 in 2005.
Even though Utah moved up in the overall national fraud rankings, the report noted that the actual number of fraud cases between 2005 and 2006 remained constant in the state.
The MARI report was commissioned by the Mortgage Bankers Association.Comment on this story
Earlier this week, John Robbins, chairman of the MBA, said in an Associated Press story that he was "mad as hell" at "a few unethical actors" that had sullied his profession's reputation, with delinquencies and foreclosures on subprime mortgages skyrocketing."The current unsettled state of the subprime segment of the industry does not bode well for fraud in the coming year," the report said. "There will be more professionals chasing a smaller pool of business. There will be severe pressure on all players to generate volumes that produce revenue and get loans approved for borrowers with marginal credit. ... There will be many that try to make unqualified borrowers look more qualified than they are."