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60 Syracuse L. Rev. 473 (2009-2010)
The Structural Causes of Mortgage Fraud

handle is hein.journals/syrlr60 and id is 479 raw text is: THE STRUCTURAL CAUSES OF MORTGAGE FRAUD James Charles Smitht IN TRODUCTION ..................................................................................... 473 I. TYPES OF MORTGAGE FRAUD ..................................................... 477 II. GEOGRAPHICAL DISTANCE ......................................................... 480 A. Transformation of the Residential Mortgage Market ......... 480 B. Mortgage Fraud Risks associated with Geographical D istance .............................................................................. 485 III. TRANSACTIONAL DISTANCE ....................................................... 488 IV . FINANCIAL D ISTANCE ................................................................. 494 V. SUGGESTED REFORMS TO MITIGATE THE EFFECTS OF D ISTAN CE ................................................................................... 498 INTRODUCTION Mortgage fraud consists of a number of different types of behavior, all of which have the common denominator of conduct that has the intent or effect of impairing the value of residential mortgage loans. The past decade has witnessed an explosion of mortgage fraud, with reports to the federal government of suspected criminal behavior rising by a magnitude of over eighteen times from 2000 to 2008.1 Mortgage fraud is presently the number one white collar crime in the United States.2 It is a key contributor to the unprecedented growth of toxic mortgage assets, which led to the implosion of the subprime lending market. The downturn in the domestic market for housing sales during the past two years has perhaps made mortgage fraud more difficult to perpetuate, but recent statistics indicate that mortgage fraud rates have not declined. In fact, the distress in the U.S. housing sales market has t John Byrd Martin Professor of Law, University of Georgia. B.A., 1974, Saint Olaf College; J.D., 1977, University of Texas. 1. FINCEN, 12 THE SAR ACTIVITY REVIEW-BY THE NUMBERS 5 (2009), http://www.fincen.gov/news-room/rp/files/sarbynumb_12.pdf. In 2008, the Financial Crimes Enforcement Network (FinCEN) received 64,816 Suspicious Activity Reports (SARs) indicating mortgage fraud, compared to 3515 in 2000. Id. 2. ALYSSA KATZ, OUR LOT: How REAL ESTATE CAME TO OWN US 142 (2009). 3. The Mortgage Asset Research Institute (MARI) publishes an annual report that analyzes residential mortgage fraud. Its latest report states: [R]eported mortgage fraud is more prevalent now than in the heyday of the origination boom .... [F]raud incidence is at an all-time high and is comprised of continuing application misrepresentations and multiple verification-oriented issues. Fewer loan originations coupled with increased fraud incidence equals new times of desperation. Industry expertise and technological advancements, when mixed with

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