1. Business

Florida still No. 1 for mortgage fraud, but improving

Published Dec. 16, 2014

For the fifth straight year, Florida is holding on to its unwanted crown as the mortgage fraud capital of the country.

Florida suffers from more than five times the expected rate of fraud based on its volume of new mortgage loans in 2013, according to a fraud index released Monday by LexisNexis Risk Solutions.

That's far worse than the second-worst state on the list, Nevada, which has slightly more than two times its expected rate of fraud. Rounding out the five worst are New Jersey, Arizona and Illinois.

But there is good news for the Sunshine State: It's getting better.

In 2009, Florida had more than seven times the expected rate of reported fraud based on the number of new loans. Back then, the state was grappling with the immediate aftermath of inflated home appraisals and poor regulatory oversight that had fueled the housing bust.

"It does look like you guys are starting to work your way through it," said Tim Coyle, senior director of financial services for LexisNexis and co-author of the report.

Coyle said Florida's woes may be due partly to its high number of investment properties, which could be prone to fraud. The prolonged foreclosure process in Florida is also hurting recovery, he said.

Unlike some other studies based on complaints or suspicion, LexisNexis examined proven mortgage fraud and misrepresentation based on 2013 data from mortgage industry professionals.

Nationwide, mortgage fraud has been on the upswing for the past three years despite the slow economic recovery. Seventy-four percent of 2013 loans involved some type of fraud or misrepresentation on the loan application, up from 69 percent in 2012 and 61 percent in 2011, LexisNexis said.

One widening concern is misrepresentation on credit documentation, which jumped from being an issue with 5 percent of loans to 17 percent between 2012 and 2013.

Asked what fixes could help Florida, Coyle cited two nagging concerns to address:

• Buyers who lie about occupancy, saying they're buying a home as a primary residence to receive a lower interest rate and homestead exemption when they're actually buying it as an investment.

• Homeowners who collude with friends or family to sell their home to them via a short sale, enabling them to, in essence, keep the property and then refinance it years later.

Not all fraud is growing, however. Only 15 percent of loans in 2013 involved appraisal and property valuation fraud, mortgage professionals reported. That's down from 26 percent in 2012, 31 percent in 2011 and 33 percent in 2010.

Coyle attributed the dropoff to the Home Valuation Code of Conduct going into effect in 2009. Under the new rules, lenders could no longer work directly with appraisers.

"This landmark regulation, which disrupted the historical appraisal process, has everything to do with the drop in this year's appraisal fraud," Coyle said. The code of conduct is no longer in force; however, it influenced other appraiser independence rules passed by Congress.

With the refinancing boom ending, the volume of mortgage loans has shrunk from $1.8 trillion to $1.1 trillion. That could put pressure on loan originators to be more creative or more lax as they scramble for a piece of that shrinking pie.

"You'll start seeing more and more fraud," Coyle predicted.

Contact Jeff Harrington at or (813) 226-3434. Follow @JeffMHarrington.


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