Mortgage fraud claims rise 42 percent in 2007

updated 2:01 p.m. ET April 3, 2008

WASHINGTON - Reports of suspected mortgage fraud rose 42 percent last year as banks became more leery of lies on loan applications.

The Treasury Department's Financial Crimes Enforcement Network said Thursday that there were 52,868 reports for mortgage fraud in 2007, up from 37,313 a year earlier. Mortgage fraud reports were the third-most common type of suspicious activity.

Banks and other financial institutions are required to alert the government of fishy financial transactions such as money laundering or check fraud.

The most common type of mortgage fraud was misrepresentation of income or assets, followed by forged documents, misrepresentation of a borrowers' intent to occupy a property as a primary residence occupancy fraud and inflated appraisals, the government said in an analysis of the report.

"The financial community is becoming increasingly adept at spotting and reporting suspicious activities that may indicate mortgage fraud," James Freis, FinCen's director, said in a statement.

The Treasury Department's enforcement unit singled out mortgage brokers for criticism, noting a growing number of them listed as initiators of the suspected fraud. Brokers were "intermediaries that did not verify information submitted on the loan application," the report said.

It also cited growth in fraud reports tied to "cash-out" refinancing, in which borrowers are able to pull out equity from their homes.

The report comes a month after the industry-funded Mortgage Asset Research Institute said Florida led the led the nation in mortgage fraud in 2007 for the second-straight year, followed by Nevada, Michigan, California, Utah and Georgia.

The Mortgage Bankers Association has called for more than $31 million over the next five years in new funding for the FBI and Justice Department to fight mortgage fraud, money that would go to new investigators and prosecutors.

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