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The national housing boom is producing a companion boom -- one that you don't read about as much: Dishonesty and outright fraud by home buyers and mortgage and realty industry professionals on loan applications has exploded in the past two yeas.

A newly-released national study by a research group says fraud-related cases on mortgage applications reported to the FBI more than doubled between 2003 and 2004. The Mortgage Asset Research Institute (MARI), which pools fraud information supplied by hundreds of mortgage lenders, says loan fraud is worst in Georgia, South Carolina, Florida, Utah and North Carolina. Individual cities with high fraud rates -- based on "serious early delinquencies" on home loans closed during 2004 -- include Atlanta, Dallas, Denver, Orlando, Charlotte, Memphis and Scranton. What sort of games are people playing with mortgage applications? You name it -- everything from little white lies about income or assets all the way up to what the FBI calls "air loans" that are based on completely fabricated information.

The rising popularity of low- and no-documentation ("stated income") mortgages is also a key component of rising fraud levels, according to MARI. Sometimes referred to as "liar loans" or "NINAs" (no asset, no income verification), low-doc mortgages originally were designed for professionals and business owners with high credit scores who preferred not to lay out their confidential tax, income and investment information every time they applied for a mortgage. Typically those loans required FICO scores above 700, relatively low loan-to-value (LTV) ratios, and came with slightly higher fees or rates. But recently, even consumers with subprime credit scores, low down payments and questionable incomes are opting for reduced documentation. Too many of these, however, turn out to be liar loans indeed, says MARI, where applicants falsify their incomes and asset information -- frequently with the help or a cooperative mortgage broker.

The MARI report cites this real-life example to illustrate the problem: "An officer at a Florida mortgage company applied to a second lender for two stated income loans. The applications were submitted 90 days apart. In the first application, the borrower stated his monthly income as $24,000, and in the second he said it was $30,000." When the mortgage officer was challenged about the discrepancy, he replied, "I thought that on stated income loans you could claim an income as high as necessary" to qualify for the loan amount the applicant needed. The most common misrepresentation and frauds in 2003-2004 related to falsehoods on applications (56 percent of all reported frauds), followed by fabricated tax returns and bank documents (33 percent -- up sharply from 23 percent three years earlier), false employment verifications (12 percent), and hoked-up appraisals (10 percent). Other key findings in the new MARI report:

California, which led the nation in fraud throughout the 1990s, no longer is even ranked among the top hot spots. On the other hand, the Midwest -- which rarely had notable fraud problems in the 1990s -- now is experiencing a rapid surge. Detroit and Chicago continue to have excessive early default rates, and Michigan, Missouri and Illinois all have risen sharply on MARI's annual list of problem areas. Columbus, Ohio, is ranked seventh overall in the country, based on its early default rate for loans closed in 2004. Property flips continue to be a significant source of fraud and financial loss for lenders. Typically more than one scamster is involved. MARI cited as an example a case from Ohio: The FBI broke up a property flip ring that involved nine real estate "investors" and title agents. The investors bought properties, then fabricated bogus appraisals to flip them to unsuspecting buyers barely weeks later, for sales price up to twice the investors' purchase price.

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