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Mortgage Fraud Down 41%

May 10, 2011 (Daily News, Los Angeles) Reports of mortgage fraud nationwide plunged 41 percent in 2010 but California climbed to third on the list of U.S. cities with the most cases, an industry tracker said Monday.

California ranked 10th in the 2009 report compiled by LexisNexis Mortgage Asset Research Institute.

It is based on confirmed cases of fraud reported to the institute by lenders and others in the mortgage industry. The numbers are then converted into an index ranking.

Florida has been ranked first since 2006.

But California has been catching up. That is partially due to the Los Angeles area accounting for 17 percent of mortgage originations last year, the most in the nation.

The state's score also likely jumped because short sales have accounted for a big chunk of sales and fraud is increasing in these sectors of the market, the company said.

Fraud cases also declined because perpetrators are becoming more clever, the company said.

"Mortgage fraud has become more complex and harder to verify using traditional methods," said Denise James, LexisNexis director of real estate solutions and co-author of the report.

The numbers are now back to 2006 levels, when California ranked sixth nationally.

Geography is one reason California and Florida have been hard hit by fraud, she said.

"Like Florida it's a coastal state. There is a lot of property out there and a lot of speculative buying and a lot of people are underwater on their loans," James said.

Types of mortgage fraud can include consumers who misrepresent information to qualify for a loan; real estate professionals who manipulate the process using their inside knowledge of lender systems; and unscrupulous professionals who pose as advocates and prey on consumers who are losing their homes.

James said that fraud can committed by both lenders, consumers and those involved in the sale of real estate.

For example, a 75-year-old Van Nuys man was ordered Monday to spend eight months in a halfway house and under home confinement for his role in a scheme that used phony bankruptcy filings to stall foreclosures of nearly 1,500 homes, according to City News Service.

Darwin Bowman pleaded guilty in February in Los Angeles federal court to bankruptcy fraud.

U.S. District Judge Stephen V. Wilson, noting Bowman's age and ill health, sentenced him to four months in a halfway house and four months in home confinement, followed by three years under supervised release.

Bowman was the third person to plead guilty in the case.

According to Assistant U.S. Attorney Evan J. Davis, the perpetrators of the scheme improperly postponed foreclosures on $725 million worth of mortgages and caused banks and lenders to lose out on loan payments from homeowners, the wire service said.

Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said that while it is good to see the numbers come down fraud is still a problem.

"It's like a lot of other crimes. The perpetrators are always looking for new avenues to make a quick buck and it's the same in mortgage fraud," he said.

Copyright (c) 2011, Daily News, Los Angeles

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