Hat tip to MB for sending this along, from the wsj.com:

Reports of mortgage fraud, which have been increasing since the housing boom, rose to their highest level on record in 2010, Treasury Department figures showed.

The Financial Crimes Enforcement Network, a Treasury agency, reported 70,472 “suspicious activity reports” related to suspected mortgage fraud, up from 67,507 in 2009, or a 5% increase. That’s the highest number recorded by the government since tracking began in 1996.

At the height of the U.S. housing boom, in 2006, more than 37,000 fraud reports were recorded. In 2001, before the housing market heated up, there were 4,695 reports of suspected mortgage fraud.

Much of the suspected fraud being reported took place several years ago and is only now coming to light, according to Lexis-Nexis’s Mortgage Assert Research Institute, a data service, which issued a report Monday highlighting the statistics.

The past suspected frauds are surfacing as financial institutions and mortgage lenders, still handling a high number of mortgages falling into default and foreclosure, take “a look back to see if people misstated or misreported their income,” said William Grassano, an agency spokesman.

Fraud artists are refining their schemes to take advantage of market distress, the report said. For example, some real-estate brokers, in a scheme known as house “flopping,” target homes that are underwater—meaning their owners owe more than the market value of the house—and obtain artificially low valuations of homes.

Then, using these valuations, the brokers convince the lender to agree to a short-sale, in which it sells a home for less than the mortgage. The buyer, in turn, quickly sells the home at market value, profiting, along with the broker, from the difference in sale prices.

“If people are about to lose their jobs or lose their homes, there are scammers out there who are ready to go in for the kill,” said Grassano.

Evidence of mortgage fraud is one by-product of the broad investigations federal regulators and state attorneys general are conducting of the industry’s practices following ast year’s “robo-signing” scandal. Facing the possibility of a costly settlement, mortgage-servicing companies are being pressed to revamp their foreclosure paperwork-filing practices, hire more staff to handle the heavy volume of foreclosures and impose tighter standards on their dealings with borrowers.

Last July, the Obama administration began a broad effort to investigate and prosecute mortgage fraud that resulted in 485 arrests and 1,215 criminal defendants in cases that resulted in the recovery of about $147 million of $2.3 billion in losses, according to the Department of Justice.

The first installment on flopping:


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