Bad Paper

Mortgage fraud, extremely prevalent in loan originations in 2007 and earlier, continues to be a huge problem for mortgages originated in the first quarter of 2008. This despite a severe ratcheting up of underwriting standards.

According to the Mortgage Asset Research Institute, commonly known as MARI, mortgage fraud jumped 42% in the first quarter of 2008 compared with the same quarter in 2007 (when loan underwriting was still largely the “Wild West”).  Interestingly, Florida ranked first in reported fraud cases with California at number two.  The largest number of reported fraud consists of misrepresentations such as income, employment, and financial condition.

“Tightening credit standards by itself doesn’t eliminate fraud,” said Merle Sharick,Vice president and national manager of business development for the MARI, especially in markets that typically attract a lot of speculators such as Florida and California.