Mortgage Fraud Still Tiny

No matter what The Wall Street Journal says.

Not to make too much of this. It’s the summer doldrums, after all, and the paper has some numbers to report from consultant CoreLogic, showing mortgage fraud rose 17 percent in 2009 from a year earlier.

It strikes me as most significant, though, that even with the increase, and even taking CoreLogic’s numbers at face value, which is a leap, as we’ll see, the actual incidence of fraud by borrowers amounted to $14 billion in 2009, which may sound like a lot, but represented just 0.7 percent of all U.S. loans that year.

That’s why this lede sentence feels a bit puffed up:

New data suggest that mortgage fraud—which got tougher to pull off after the collapse of the U.S. real estate market—is returning in a big way.

At least it doesn’t say borrower fraud “goes a long way” toward explaining the mortgage crisis, as a past story did. Yeesh.

Regular readers of this space know we believe that the Boiler Room archipelago (read all about it for the low, low price of $1.99) set up by the mortgage industry to feed the Wall Street aftermarket machine has been woefully under-examined by the business press. In a single 2002 case, a Citigroup unit was found to have systematically misrepresented loan terms to two million customers. And that was before the party really got started.

No doubt, borrower fraud is real and was an even larger part of the equation during the bad old days; some peg it in the 10-percent range. I’d be interested in seeing some data on that.

So, while it’s good to check, having Corelogic run these numbers doesn’t seem to have yielded much.
The new twist apparently is that crooked borrowers, facing tighter underwriting standards, have taken to more complex schemes. It’s a reasonable idea, but supported by just a couple of examples and a canned quote from the FBI, which, let’s face it, has been the unicorn of the mortgage crisis.

Also, while the story candidly says that Corelogic is a mortgage-industry consultant on mortgage fraud, and hence has an interest in hyping the phenomenon (as does the mortgage industry, natch), it doesn’t say how the firm comes up with its figures. It just says the firm “examines about 7 million loans each year using a proprietary computer program that detects discrepancies in loan documents and predicts the likelihood of fraud.” So, a black box.

Given the source, and the findings, a brief would probably have been one way to go, or maybe a rumination of the trustworthiness of 99.3 % of mortgage borrowers.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.