For sure, a No. 1 we don't want

By Robert Trigaux, Times Business Editor
Published May 21, 2007

"If mortgage fraud were an automobile race, the 2006 figures show Florida, California and Michigan as leading the race."

Mortgage Asset Research Institute

Sure, it's fun to be No. 1. Florida crows about it every chance it gets. First in job growth. First in spring breakers. But first in mortgage fraud?

We ought to be ashamed, but add fraud to our trophy wall of top finishes. Last week, the Mortgage Asset Research Institute crowned the Sunshine State as tops, surpassing perennial winner Georgia.

Sadly, it makes sense. History shows that red-hot housing markets are open invitations for fraud opportunities ranging from inflated house appraisals to doctored loan applications and income verifications. As long as home prices are soaring, nobody really cares because everybody gets a profitable piece of the pie in an appreciating market. But the faster they rise, the harder they fall. In declining housing markets, fraud is more easily exposed.

Readers of the Times may have noticed mortgage fraud stories are on the upswing. Investigative reporter Jeff Testerman recently chronicled the capture and sentencing of up to 54 years of mortgage fraud mastermind Matthew B. Cox. And Times senior correspondent Susan Taylor Martin examined suspicious deals handled by loan officer Victor Clavizzao in which a home would be flipped at inflated prices several times in a year despite a sluggish market. The FBI confirms it's investigating mortgage fraud in Pinellas County.

Mortgage Asset Research Institute, which tracks mortgage fraud for the home-lending industry, said Florida soared to No. 1 in 2006. But it was also Georgia's concerted efforts to reduce fraud within its borders that allowed Florida's northern neighbor to fall to No. 4 in the latest rankings.

There's a message here. Florida can get a grip on its rampant fraud - if the state and the lending, real estate, appraisal and title industries really want to.

The fraud report does wave a few red flags for the future:

- The shakeout of the subprime lending market which caters to higher-risk borrowers, the most vulnerable to fraud, has several years to go.

- The end of Florida's housing boom means more real estate and mortgage workers will be competing for the smaller, remaining business. While most folks are honest, some in the industry will be tempted to make unqualified borrowers look more qualified than they are.

"When these conditions are coupled with a regulatory environment (in most states) where fraud perpetrators face relatively light penalties, the conditions are temptingly ripe for escalated mortgage fraud activity, " the report warns.

Next year, let's not be No. 1.

Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

Top 10 states in mortgage fraud


2. California

3. Michigan

4. Georgia

5. Utah

6. New York

7. Illinois

8. Minnesota

9. Colorado

10. Nevada

Source: Mortgage Asset Research Institute