The Financial Crimes Enforcement Network (FinCEN) in its new report, Mortgage Loan Fraud SAR Filings In Fourth Quarter and Calendar Year 2010, released full year data showing the number of suspicious activity reports involving mortgage loan fraud (MLF SARs) increased 4 percent in 2010 to 70,472 compared with 67,507 MLF SARs filed in 2009. The report also shows that the growth rate of MLF SARs began to slow over the last two to three years. Looking at just the 2010 fourth quarter, filers submitted 18,759 MLF SARs, a 1 percent decrease from the 18,884 filings over the same period in 2009.

The FinCEN report found that references to bankruptcy have steadily increased over time in MLF SAR filings. In 2010, 6 percent of all MLF SARs contained a key term related to bankruptcy in the SAR narrative, compared to 1 percent in 2006 and 2007. In 2010, mortgage loan fraud was cited in 54 percent of all SARs referencing bankruptcy fraud, up from 42 percent in 2009. Some MLF SARs specified the type of bankruptcy filing, most frequently Chapter 7, which was cited in 27 percent of 2010 reports citing both bankruptcy and MLF.

Filers in their SARs also called attention to debt elimination scams as one of the emerging practices. Debt elimination scams were cited in nearly 1,300 MLF SARs in 2010. In these SARs, filers noted subjects sending a variety of documents or bogus payment methods to financial institutions, in attempts to eliminate or satisfy mortgage obligations. SAR filers over the course of 2010 explicitly referenced “flopping” in 112 SARs last year. This compares with relatively stable occurrences of suspicious activity involving broker price opinions and short sales in 2010.

Flopping occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who quickly sells the property at a higher price and pockets the difference. Anecdotal feedback on this practice from law enforcement and industry sources suggests that the volume of related MLF SARs is much lower than the actual number of suspected flopping incidents. The increasingly dated activities reported on SARs suggests a lack of emphasis on this type of current activity.

The FinCEN report also contains data of state, county, and metropolitan statistical area (MSA) by total number of and per capita filings of MLF SARs. For instance, the report shows that Nevada had the highest number of MLF SARs per capita in 2010, followed by Florida, California, Illinois, and Georgia. The five MSAs with the highest per capita filings of MLF SARs in 2010 were Miami; Las Vegas; San Jose, CA; Riverside, CA; and Los Angeles. The five counties with the highest number of MLF SARs per capita were Miami-Dade, Gwinnett in Georgia, Broward and Orange in Florida, and Nassau in New York.

FinCEN also reported that all types of SARs filed by depository institutions in 2010 fell 3 percent to 697,389 compared with 720,309 SARs filed by depository institutions in 2009. But, the total number of SARs filed in 2010 by all types of financial institutions covered by the Bank Secrecy Act grew nearly 4 percent to 1.3 million SARs up from 1.9 million filed in 2009.

Note to reporters: Beginning with this mortgage fraud report, FinCEN has added new features that provide additional data and explanation of MLF SARs. Among the new features include:

* More concise MLF SARs information on all 50 states and the District of Columbia provided by links to spreadsheets.
* An expanded metadata section containing reference information on the derivation and uses of this data.
* Historical quarterly data going back through 2006 for almost 600 metropolitan statistical areas and approximately 960 counties in addition to the states data.
* Trend analysis enabled by linking to electronic spread-sheets and to historical data.
* Ability to drill down to the county or city level revealing more concise information.
* Maps: Calendar year 2010 SAR data provides a new perspective on year-over-year changes enabling more illustrative comparisons with prior years’ data.

“FinCEN remains active with law enforcement and other partner agencies to provide lead information and to identify and combat potential abuses in the mortgage market,” said FinCEN Director James H. Freis, Jr. “As a member of the President’s Financial Fraud Enforcement Task Force, FinCEN is coordinating with the United States Trustee Program (USTP) and the Federal Bureau of Investigation (FBI) to identify potential mortgage loan fraud in a number of areas including identifying potential abuse of the bankruptcy system to facilitate mortgage fraud.”

While the national Mortgage Fraud Risk Index, still elevated at 140 (n=100), remains essentially flat from both the previous quarter and from a year ago, increases in fraud in the Chicago area may illustrate the danger of previously localized risks spreading throughout a metropolitan area according to Interthinx’s Q4 2010 Mortgage Fraud Risk Report.

• Illinois, with a jump of 26 points, saw the largest quarter-on-quarter fraud risk increase. It contains the Chicago zip code 60621, which has been the most risky
zip code in the United States for three consecutive quarters. Over those three quarters, the overall risk in the Chicago MSA has increased dramatically, from “moderate risk” in Q2 2010 to “very high risk” in this quarter, which suggests that previously localized risks may be spreading throughout the metropolitan area.

• Nevada continues to be the state with the highest fraud risk with an index value of 255, followed by Arizona and Florida with index values of 210 and 181 respectively.
California, which contains six of the top ten most risky MSAs, is in fourth place with an index value of 180.

• The Employment/Income and Identity Fraud Risk indices are up by more than 25% over the last year. The sharp rise in fraud risk in these categories is primarily
associated with re-finances, loan modifications, and purchase mortgages involving the resale of distressed properties.

• The Occupancy Fraud Risk Index, which is closely associated with undisclosed investment properties, continued a decline that began in Q2 2010. This downward
trend is likely due to the fact that short sale purchasers are increasingly turning to private “transactional” and non-bank funding sources and away from traditional
mortgages with occupancy requirements.

• The Property Valuation Fraud Risk Index has also declined each quarter since Q1 2010, most likely due to the fact that properties acquired through “flopping”
short sale frauds, which played a large part in the run up in this index in 2008 and 2009, are now being sold to end buyers at or near actual fair market values.

• Short and REO sales constitute a significant share of all sales in the majority of the highest risk MSAs in the Occupancy and Property Valuation Fraud Risk indices and
present an area of critical fraud risk for lenders today in view of an abundant supply of distressed borrowers and government pressure to avoid foreclosures. The risk
is acute for lenders and servicers who do not employ risk controls and analysis in their servicing, loss mitigation and origination departments. The aggregated financial
losses to lenders, servicers and investors from short sale and other default related fraud schemes are significant and rising.

Hugo Oliva, 47, Miami-Dade, Florida, has pled guilty to mail fraud and money laundering charges in connection with a mortgage fraud scheme. Sentencing has been scheduled for March 14, 2011, at 11 a.m. before U.S. District Court Jude Jose E. Martinez.

Defendant Oliva was previously charged on July 15, 2010. According to court documents and testimony, this investigation began in May 2006, when law enforcement discovered marijuana grow house operations in numerous homes in Port St. Lucie, Florida. During the investigation, many of those homes were linked to co-defendant Manuel Caro. Manuel Caro was charged in 2006 for his participation in the marijuana grow house operation, but fled after being released on bond. He remains a fugitive.

Continued investigation led to the discovery of additional marijuana grow houses in St. Lucie, Palm Beach, and Miami-Dade Counties.

According to the superseding indictment, most of these homes were bought with funds obtained through mortgage fraud committed by defendant Hugo Oliva, a mortgage broker, through his company, MBA Mortgage Services, Inc., and his co-defendants, including Sergio Caro. To execute the scheme, the defendants submitted loan applications to mortgage lenders that contained false information, including false bank statements, W2 forms, pay stubs, verifications of deposit and verifications of employment.

The defendants in the mortgage fraud scheme were charged with various counts of conspiracy, mail fraud, drug charges, and laundering drug-related money through the purchase of the homes. On December 13, 2010, defendant Sergio Caro, 37, was sentenced to 37 months in prison and ordered him to pay $671,166.36 in restitution to victim mortgage lenders. Two additional co-defendants, Ilan Reyes, 37, and Orlando Dominguez, 44, both of Miami, pled guilty and were each sentenced to probation for a term of 5 years.

Mr. Ferrer commended the investigative efforts of the IRS Criminal Investigation Division and the Drug Enforcement Administration. Mr. Ferrer also thanked the Port St. Lucie Police Department, the St. Lucie County Sheriff s Office, and the U.S. Marshals Service for their work on this investigation. The case arose from the Organized Crime and Drug Enforcement Task Force (OCDETF) long-term investigation. The case is being prosecuted by Assistant U.S. Attorney Theodore Cooperstein.

Rebecca Moody, 61, formerly of New Port Richey, Florida, was arrested in West Virginia, on charges of wire fraud and transportation of stolen property in connection with a mortgage, and other accounts, belonging to an elderly, disabled victim who resided in New Port Richey, Florida, at the time of the charged offenses. If convicted on all counts, Moody faces a maximum penalty of 20 years in federal prison on the wire fraud charge and up to 10 years in federal prison on the transportation of stolen property charge. The indictment also notifies Moody that the United States intends to forfeit any property traceable to proceeds of the offense.

According to the indictment, Rebecca Moody is alleged to have engaged in a scheme to defraud an 80-year-old disabled woman by using a fraudulently obtained power of attorney to procure a fraudulent mortgage loan from Wells Fargo Bank on the victim’s unencumbered residence without the victim’s knowledge. The indictment claims that Moody was also engaged in the theft of other funds from other accounts belonging to the victim in order to acquire money for Moody’s personal use, and for the use of her daughter, all in contradiction of her fiduciary capacity to conduct the financial affairs in the best interest of the disabled and elderly victim.

An indictment is merely a formal charge that a defendant has committed a violation of the federal criminal laws, and every defendant is presumed innocent unless, and until, proven guilty.

United States Attorney Robert E. O’Neill made the announcement.

This case was investigated by Federal Bureau of Investigation in connection with the Pasco County Sheriff’s Office. It will be prosecuted by Assistant United States Attorney Kelley C. Howard-Allen.

With only a month left and just over 10,000 of the almost 43,000 mortgage industry professionals having submitted their new applications, the Florida Office of Financial Regulation (OFR) is concerned that mortgage professionals will not get their applications in on time and will not be able to continue working in the industry come January 1, 2011. All industry licensees are required to re-apply under the new Nationwide Mortgage Licensing System (NMLS) with more stringent requirements, Professionals whose applications are certified as received by December 31, 2010, can continue to work while their application is processed. If a person’s application is not certified as received by December 31, 2010, they will find themselves unable to legally continue working in the mortgage industry and out of work until the new license is approved, which could take more than 3 months.

• Current number of licensed mortgage brokers: 42,666

• Loan Originator applications received as of December 1, 2010: 10,308

• Current number of licensed mortgage companies: 6,967

• New company applications received as of December 1, 2010: 995

• Current number of licensed mortgage company branches: 3116

• New branch applications received as of December 1, 2010: 727

On October 1, 2010, Florida began accepting applications under NMLS, and all existing individuals, companies, and branch offices are now be required to reapply for licensure. But before an application can be certified received a series of requirements must be met and verified, including:

• New state and federal criminal background check

• Satisfaction of pre-license education (includes certification if eligible)

• At least one attempt at the state and national test (includes certification of state test if eligible)

• Credit Report

“We have rigorously been reaching out through industry organizations and their communications vehicles, trying to drill down the message and encouraging applicants to apply now so that they can continue to work while their application is being processed,” said Tom Cardwell, Commissioner of the Florida Office of Financial Regulation. “The longer you wait the more risk you take, and the last thing we want to see is Floridians who are unable to legally continue working in the mortgage industry just because they didn’t get their applications in on time.”

For more information on the new mortgage licensing requirements and process go to http://www.flofr.com/Finance/index.htm, or call the Office’s Licensing Bureau at 850-410-9895.