Mortgage fraud in Maryland was the sixth-worst in the nation last year, according to a new report that finds continuing problems nationwide despite tighter lending restrictions.
The state's rate of reported fraud was 36 percent higher in 2009 than the national average, the Mortgage Asset Research Institute said Monday. The institute, a provider of mortgage-fraud-prevention services, compared the number of fraud cases in each state to that state's total number of newly issued mortgages.
Maryland's ranking is an improvement over 2008. The state ranked fifth that year, with 82 percent more fraud than the national average.
"You're actually getting better," said report co-author Denise James, director of real estate solutions with LexisNexis Risk Solutions, the institute's parent company.
Topping the list was Florida, with nearly triple the national average on fraud. That state's housing market was one of the bubbliest during the housing boom, and it has fallen fast and hard since.
Rounding out the top five were New York, California, Arizona and Michigan.
U.S. mortgage fraud cases rose 7 percent overall last year, the institute said. Lenders and other companies in the mortgage industry send information about cases to the institute when they discover loans they wouldn't have originated, purchased or insured had they been working with accurate information upfront.
Nationwide, problems range from doctored financial statements and inflated appraisals to short-sale scams, the institute said.
Lenders are so busy dealing with borrowers behind on their mortgages that some aren't doing enough due diligence on new loans, "ripening the opportunities for and complexities of fraud," the institute's report says.
"Collusion among insiders, employees and consumers is highly effective in times of recession because everyone has something to gain in times of desperation," the institute's report says. "Fraud and misrepresentation in the mortgage industry helped to facilitate the economic crisis, and reported issues as recent as those in 2009 are leading to new forms of collusion and opportunistic scamming."
Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda-based trade publication, said it's much harder to commit fraud on loan applications than it was several years ago, when no-documentation mortgages were all the rage. But scammers have new ways to profit from older loans, thanks to the wave of foreclosures, short sales and struggling borrowers seeking loan modifications, he said.
"I think the lion's share of growth in fraud is taking place on the servicing side, not the origination side," said Cecala, referring to existing mortgages rather than loans that borrowers are trying to get.
Maryland's improved ranking in 2009 came on the heels of rapid worsening in previous years, as the housing market slumped. In 2005, at the peak of the buying frenzy, the state was 28th and had much less reported fraud than would be expected of a mortgage market this size.
But some of the problems during the housing-boom years went unreported nationwide. Inflated appraisals in those days were "masked by rapidly appreciating home prices," noted Darius Bozorgi, chief executive of Veros Real Estate Solutions, which focuses on controlling mortgage risk.
Mark Kaufman, Maryland's deputy commissioner of financial regulation, said a national licensing system for mortgage brokers that's ramping up now should help tamp down on fraud here and elsewhere. It creates a permanent record for loan officers that travels with them wherever they go. If a loan officer's license is revoked in one state, none of the other states will license him or her, Kaufman said.
All Maryland mortgage brokers must be on the system by the end of the year.
"A lot has been done in the last 24 months to elevate both the requirements and the accountability for that profession," Kaufman said.
Top mortgage-fraud states in 2009
2. New York
7. New Jersey
Source: Mortgage Asset Research Institute