Mortgage Fraud: Data Confirms Spike in 2006-2007

The Financial Crimes Enforcement Network (FinCEN) has released an analysis of Mortgage Fraud SAR Filings in Calendar Year 2012. The report was issued on August 20, 2013. This publication updates FinCEN’s prior Mortgage Loan Fraud (MLF) assessments examines Suspicious Activity Report (SAR) filings from January through December 2012 (CY 2012).

The report provides new information on the volume of SAR filings, geographic locations of subjects, and other filing trends in CY 2012. Tables covering non-geographic aspects are compared with filings from corresponding periods in2011. A section provides updated statistics on foreclosure rescue-related SARs during 2012, and filers’ voluntary use of the new FinCEN SAR e-filing report for voluntary mortgage fraud reporting through March 31, 2013.

This article offers an outline of the FinCEN report. Please visit our Library to download it.

IN THIS ARTICLE

MLF SAR Filings by Year SAR Received, 2001-2012

Mortgage Loan Fraud (MLF) SARs
Time Elapsed from Activity Date to Reporting Date

Number of Mortgage Loan Fraud SAR Filings by Year
with and without the Term “Repurchase” in Narrative

Mortgage Loan Fraud SAR Subjects - Top 20 States and Territories

Foreclosure Rescue Scams

Number of Mortgage Loan Fraud SAR Filings by Year
with Term “Foreclosure Rescue” in Narrative, 2003-2012

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MLF SAR Filings by Year SAR Received, 2001-2012

FinCEN’s data on suspected mortgage fraud shows that reports declined 25% in 2012  (from 92,561 to 69,277) as compared to the previous year. The past three years of suspected mortgage fraud suspicious activity reports (MLF SARs), if counted by the date they were received by FinCEN, accounted for approximately 46% of the past decade’s mortgage fraud SARs.

We take this to mean that filing increases or decreases are not necessarily indicative of overall increases or decreases in MLF activities over a bracketed period, as the volume of SAR filings in any given period does not directly correlate to the number or timing of suspected fraudulent incidents in that period.

However, one of the inherent features of mortgage fraud is that the suspicious activity associated with it is often only recognized and reported years after loan origination, after a review of origination documents is prompted by a loan default, repurchase demand, or other factors. As a result, many mortgage fraud SARs are filed much later than the date that the suspicious activity actually began. Thus, in 2012, 57% of SARs reported mortgage loan fraud (MLF) activities that started more than 5 years before the SAR was filed.

The bulk of FinCEN’s MLF SARs, regardless of filing date, references suspicious activity that the filers believe began in calendar years 2006 and 2007.

Mortgage Loan Fraud (MLF) SARs
Time Elapsed from Activity Date to Reporting Date

This chart depicts the number of annual mortgage fraud SAR filings based on the year FinCEN received the SAR versus the year that the filer believed the suspicious activity actually began (which was usually at the time of the loan origination).

It should be noted that the chart shows there was an extraordinary concentration of suspicious mortgage origination activity beginning in 2006 and 2007, the years immediately preceding the financial crisis of 2008.

FinCEN: Accountant and Elder Abuse

We have been keeping track of FinCEN's SAR Activity Review – Trends, Tips & Issues virtually from its inception.

In its just issued May 2013 report, FinCEN provides new information regarding two areas of importance:

1) The Suspicious Activity Report (SAR) filing patterns related to elder financial exploitation before and after the publication of FinCEN's Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Elder Financial Exploitation ("Advisory"), in February 2011, and

2) An analysis of trends related to SAR filings involving accountants and involving insider abuse within depository institutions.

In this newsletter, I would like to provide you with some insights regarding each of these areas of concern reviewed in the FinCEN report, with a brief review of elder abuse trends and a much more extensive review of suspicious financial activity involving accountants.*

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Elder Abuse - Trends
Accountant Abuse - The Gatekeeper
Sampling the Data
Separating the Wheat from the Chaff
Accountants Abuse - Trends
Conclusion
Library

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Elder Abuse - Trends

A comparison of the filing rates pre- and post-advisory of SARs with narratives containing the two key search phrases “elder financial exploitation” and “elder financial abuse,” shows a very significant increase in relevant filings post-Advisory.

Between March 1, 2011, and August 31, 2012, filers submitted 7,651 total SARs, a 382 percent increase from the 12-month period prior to the release of the Advisory during which filers completed 1,589 relevant SARs. Post-Advisory filing trends showed continued increases in filing incidences.

SARs generally reported patterns of financial exploitation perpetrated by a relative or caregiver against elderly victims. Narratives most frequently described the perpetrator coercing or cajoling the victim into completing financial transactions that benefited the perpetrator at the expense of the victim.

There are reported instances where the perpetrator reportedly abused a power of attorney over the victim’s account.

Furthermore, so-called "sweetheart scams" were on the rise. A “sweetheart scam” involves the fraudster feigning romantic intentions towards a victim, thus gaining the victim’s affection. The perpetrator then uses the goodwill engendered to defraud the victim. This fraud may impact the victim’s financial accounts and/or identity security, and may even cause the victim to unwittingly facilitate financial fraud against others on the perpetrator’s behalf.

An increased trend in elder financial abuse was noted in the 18 month period after the issuance of the Advisory. Depository Institutions filed 6,026 elder financial exploitation-related SARs in this period. FinCEN determined that institution filers identified “abuse by a relative or caregiver” as the most reported months post-Advisory.

Monthly post-Advisory filing numbers indicate that filers continued to increase their submissions of SARs related to elder financial exploitation more than a year and a half after issuance of the Advisory. FinCEN reports that this trend suggests that many filers have incorporated FinCEN’s elder financial exploitation guidance into their AML monitoring programs. Sample narratives showed filers checked “Other” most often as the characterization of suspicious activity when describing suspicious transactions involving elderly customers.

FinCEN: SAR Narrative, PowerPoint, and Mortgage Loan Fraud

On September 18, 2012 FinCEN held an Informational Webinar regarding the new FinCEN Suspicious Activity Report (SAR).

The corresponding, full PowerPoint presentation of the recorded version of this Webinar is available HERE.

For those interested in actually viewing the Webinar, HERE is the link to the FinCEN webpage.

Recently, FinCEN issued two important reports (available in our Library): 

- SAR Activity Review – Trends, Tips & Issues (Issue 22)

- Mortgage Loan Fraud Update - Suspicious Activity Report Filings in 2nd Quarter 2012 

The first report offers significant insight and guidance in monitoring suspicious activity, and the second report provides important insights regarding SAR filings related to mortgage loan fraud. For years we have worked with our bank clients on auditing their SAR filings and AML compliance, and I can vouch for the practical advantages of reading these on-going FinCEN reports to enhance your risk management responsibilities.

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IN THIS ARTICLE

SAR Narrative: "5 W's and the How"

Mortgage Loan Fraud - Statistics and Charts

Foreclosure Rescue Scams on the Rise

California: Highest 2012-Q2 Foreclosure Rescue SARs

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SAR Narrative: "5 W's and the How"

In the recent SAR Activity Review, sections are provided that outline the basic aspects toward filing a SAR. In particular, the section  on writing an effective SAR Narrative is important to consider.

FinCEN rightly states that the narrative "is a critical part of the SAR because it is where the filer can summarize and provide a more  detailed description of the activity being reported." For that reason, it is essential that the narrative be clear, complete and thorough.

This section of the FinCEN report offers the "5 W's" that I have written about extensively as a way to develop the SAR narrative. (See, for instance, my article, Anti-Money Laundering Program - Preparation is Protection, August 2012.)

Our clients have learned  how to use this narrative method. The FinCEN report does not mention the "How" narrative that I have advocated - and which I will discuss below. In my view, the Anti-Money Laundering Program should have an appendix devoted exclusively to the SAR Narrative procedures, especially outlining  the "5 W's and the How" method of writing it.

The narrative must be clear, complete and thorough and the method I advocate is an effective means toward accomplishing these  goals.

FinCEN's outline is rather brief, so I will provide a much more extensive set of action steps for you to follow.

The following are the "5 W's" method provided by FinCEN, after which I will add some remarks about narrating the "How".

Who is conducting the suspicious activity?

While one section of the SAR form calls for specific suspect information, the narrative should be used to further describe the suspect or suspects, including occupation, position or title within the business, and the nature of the suspect’s business(es). If more than one individual or business is involved in the suspicious activity, identify all suspects and any known relationships amongst them in the Narrative Section.

While detailed suspect information may not always be available (i.e., in situations involving non-account holders), such information should be included to the maximum extent possible. Addresses for suspects are important: filing institutions should note not only the suspect’s primary street addresses, but also, other known addresses, including any post office box numbers and apartment numbers when applicable. Any identification numbers associated with the suspect(s) other than those provided earlier are also beneficial, such as passport, alien registration, and driver’s license numbers.