April 5, 2011 –
FinCEN Issues Mortgage Loan Fraud Report and Commercial Real Estate Financing Fraud Suspicious Activity Report Analysis and Advisory

This week, the Financial Crimes Enforcement Network (“FinCEN”) issued two (2) news alerts (collectively, the “News Alerts”) to announce the issuance of FinCEN’s report on Mortgage Loan Fraud Suspicious Activity Report (“SAR”) Filings In Fourth Quarter and Calendar Year 2010 (the “Mortgage Loan Fraud Report”) as well as the Commercial Real Estate Financing Fraud SAR analysis (“CRE Fraud Analysis”) and Commercial Real Estate Fraud Advisory (“CRE Fraud Advisory”).

The Mortgage Loan Fraud Report released full year data showing the number of SARs involving mortgage loan fraud increased by four percent (4%) in 2010 to 70,472 compared with 67,507 mortgage loan fraud SARs filed in 2009.  Miami-Dade, Broward and Orange county, Florida were three of five U.S. counties with the highest mortgage loan fraud SAR filings per capita.  The Mortgage Loan Fraud Report also shows that the growth rate of mortgage loan fraud SARs began to slow over the last two to three years.  Looking at just the 2010 fourth quarter, filers submitted 18,759 mortgage loan fraud SARs, a one percent (1%) decrease from the 18,884 filings over the same period in 2009.

The CRE Fraud Analysis revealed that incidences of suspicious activity in commercial real estate financing almost tripled between 2007 and 2010.  In addition, the CRE Fraud Analysis shows that the largest class of suspicious transactions reported was for loans under $1 million.

In conjunction with the CRE Fraud Analysis, FinCEN also released the CRE Fraud Advisory to assist financial institutions in targeting fraudulent activity in the commercial real estate sector.  The CRE Fraud Advisory provides examples of common commercial real estate fraud schemes and suggests that financial institutions use the term “CREF” when completing SAR narratives involving potential commercial real estate fraud.

On a related note, FinCEN Director, James H. Freis Jr., commented that pending proposed regulations requiring residential mortgage lenders and originators to adopt anti-money laundering (“AML”) programs and report suspicious transactions would significantly augment FinCEN’s initiatives in the mortgage fraud area.  FinCEN issued a Notice of Proposed Rulemaking (“Proposed Rule”) in December 2010 that would require non-bank residential mortgage lenders and originators to establish AML programs and file SARs.  Director Freis clarified that the Proposed Rule does not make residential mortgage lenders “financial institutions” under FinCEN regulations and consequently, residential mortgage lenders will have no duty to file Currency Transaction Reports nor responsibility for record retention.

To read complete copies of the News Alerts on the FinCEN website, click here and here.