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Florida Ranks No. 2 In Fraud Report

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By ALAN ZIBEL

The Associated Press

Published: March 17, 2009

WASHINGTON - After two years at the top of the heap, Florida no longer holds the distinction as the nation's top fraud spot. Rhode Island made its first appearance to lead the list, which covers 2008.

The mortgage industry, applying far more scrutiny after a tidal wave of defaults, reported a record number of mortgage fraud incidents last year.

The number of mortgage fraud reports among loans made last year grew 26 percent from a year earlier, according to a study released Monday by the Mortgage Asset Research Institute.

The increase came as lenders dramatically tightened their standards, making it more difficult for borrowers to qualify for home loans without large down payments, solid credit and proof of their incomes. With credit far tighter, about $1.4 trillion in home loans were made last year, down about a third from a year earlier, according to trade publication Inside Mortgage Finance.

The recession has also increased pressure on shady mortgage lenders and brokers - as well as borrowers - to lie on loan applications, according to the fraud report. "There's a lot more desperation, with the economy being what it is," said Jennifer Butts, one of its co-authors.

More than 60 percent of mortgage fraud cases last year stemmed from falsified applications, 28 percent came from tax returns or financial statements, and 22 percent came from appraisals, the study said.

One fast-growing scheme, the report said, is coming from "foreclosure prevention specialists" who offer to rescue distressed borrowers and sometimes trick the borrower to sign over the deed to their house.

Florida, which was No. 1 for two straight years, dropped to No. 2. Illinois ranked third, followed by Georgia and Maryland.

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