Mortgage Fraud Skyrockets, Demand Grows for Forensic Services
Mortgage fraud in the U.S. has skyrocketed, according to a new report from the Mortgage Asset Research Institute (MARI). The study (which MARI compiled data from the biggest names in the lending industry, including Fannie Mae, Freddie Mac, Wells Fargo, Bank of America and J.P.MorganChase) found that the number of fraudulent loans issued during the first three months of 2008 jumped 42% from the same period a year ago. “The mortgage industry is currently in a volatile state, as many constituents try to protect themselves from criminals who continue to use these turbulent times as an opportunity to commit new fraud and inflict additional financial damage for our nation’s lenders,” according to the report.
Exacerbated by the credit crisis and economic slowdown, the fields of fraud and litigation as well as forensic accounting are hot…and getting hotter. Membership in the Association of Certified Fraud Examiners (A.C.F.E.), which was founded only in 1988, has increased by more than 50% since 2003 to 45,000 members. Executive search firm, A.E. Feldman, says that accounting jobs, particularly fraud and litigation opportunities as well as business valuation jobs are opening up. CPAs with expertise in forensic accounting are in a prime position to benefit from the surge in demand. The firm notes, however, that forensic accountants today must be adept at dealing with complex investigations.
In its latest weekly survey released September 3rd, the Mortgage Bakers Association found that loan applications increased 5.8% compared with the previous week, but was down 27% compared with the same week just one year ago. Complicating matter, facing soaring delinquencies and foreclosures, mortgage lenders have tightened underwriting standards. As a result, fraud is on the rise.
The most common type of fraud pertains to employment history and income, according to the MARI report. A growing number of applicants exaggerated how much they earned and misrepresented their job descriptions. The biggest increase, however, came from a jump in the number of undisclosed or incorrectly reported debts, liens and judgments. In addition, MARI continues to see multiple fraud types, such as identity theft and identity fraud, in loan transactions.
MARI says the trend is unlikely to change in the near term. “Loan application misrepresentation continues to plague the industry. Mortgage fraud will not disappear - in fact, it is expected to significantly grow, evolve and penetrate new areas within the industry.”
Amid the prevalence of litigation and fraudulent activities, the AICPA is holding a National Forensic Accounting Conference on Fraud and Litigation Services later this month to provide up-to-date information and guidance on the best practices in this arena. The group contends that fraud in the mortgage industry is a hot topic. Professionals must adeptly apply complex analytical techniques, scrutinize online consumer transactions, explore public databases, conduct advanced interviews, face video depositions and analyze written statements.
Amid the trend, a number of firms are already bolstering their forensic services teams. Facing the ongoing wave of sub-prime related litigation, global expert services firm, LECG, recently announced that it has added significant investigative, and litigation consulting talent to its ranks. The firm has hired a group of 16 experienced professionals.
“We are delighted to welcome such a powerhouse group into the firm. They bring stellar accomplishments and credentials in a number of important disciplines,” said LECG Chief Executive Officer Michael Jeffery. Richard Boulton, Head of LECG’s Finance and Accounting Services (FAS) segment adds, “Their addition further positions LECG to take on large-scale forensic investigations and litigation assignments tied to the credit crisis and ongoing wave of sub-prime related litigation.”
BPM also announced that it has further developed its Litigation Consulting Services in the areas of Fraud and Forensic Accounting.
Morever, FTI Consulting, the global business advisory firm, says that opportunities in forensic and litigation consulting will be significant in 2008 as litigation surrounding the global credit crisis and turmoil in the financial markets provides multiple engagements. The firm says the issues involved include valuation of complex financial instruments, financial statement reporting and investigations into business practices.
In recent months, the FBI also announced it was already investigating 14 corporations involved in subprime lending as part of its Subprime Mortgage Industry Fraud Initiative launched last year. The companies in question come from the financial services industry, including mortgage lenders and investment banks that bundle loans into securities which are sold to investors. Moreover, back in June, the FBI’s Mortgage Fraud Task Force arrested more than 400 mortgage brokers, lenders, appraisers and other industry insiders responsible for more than $1 billion in losses. Among the professionals the FBI has enlisted to work on the investigations are forensic accountants, according to AccountingWeb.com.
A.E. Feldman’s accounting and legal divisions are constantly researching industry trends and developments. To learn more about these issues or inquire about existing and future job opportunities in accounting or legal, the lines of communication are open. Contact the A.E. Feldman’s President, Mitch Feldman and the firm’s cutting edge recruiting team here.
