MIAMI – March 14, 2008 – For the second consecutive year, Florida ranked No. 1 in the country for mortgage fraud, as the stalled housing market quickly pushed both prevaricating borrowers and seasoned criminals into foreclosure.

Lenders reported more than twice the number of suspected fraud cases in Florida than would otherwise be considered average, based on the number of loans originated here in 2007, according to a report Thursday by the Mortgage Asset Research Institute and an industry group of the nation’s biggest lenders.

The fallout is showing up in state’s historic foreclosure rates. The report notes that fraud and delinquency rates are closely linked, as borrowers who may have lied to qualify for a home loan find themselves unable to make their monthly payments and criminals abandon properties after they have skimmed the proceeds of illegal mortgage transactions.

Florida also ranked second in the number of new foreclosures filed in the last three months of last year, and third in the total number of loans in foreclosure at the end of 2007, the Mortgage Bankers Association reported.

As losses tied to the faltering real estate market mount, lenders, mortgage insurers, Wall Street investors and the federal government are taking a sharper look at failing loans and discovering the extent fraud has played in bringing about the current crisis.

On Thursday, top economic policy makers unveiled the most extensive plan yet to tighten regulatory oversight of the system in which home loans are originated, secured, rated and traded in the secondary market.

In Miami-Dade County, more than 1,500 cases of suspected fraud have been reported to police since the fall, said Glenn Theobald, chief legal counsel for the department and chairman of Mayor Carlos Alvarez’s Mortgage Fraud Task Force.

“We can’t get through them all – one case turns into five,” Theobald said. The department, he said, has 10 investigators dedicated to mortgage fraud, representing a “tremendous commitment.”

Reports of possible mortgage fraud, as measured in the number of so-called Suspicious Activity Reports, or SARS, filed with the FBI and the Financial Crimes Enforcement Network have risen 139 percent since 2000, from 3,515 to 46,700 cases last year.

Those figures are likely far greater, said Merle Sharick, MARI’s national manager of business development, because reports are filed only by federally regulated institutions, which excludes many mortgage lenders.

Financial losses are conservatively estimated to top $1 billion, Sharick said.

Florida’s latest ranking comes despite a new mortgage fraud law passed last year that made mortgage fraud a crime and established stringent criminal penalties. The Florida law mirrors a similar measure passed by Georgia in 2005, which served to dramatically button down fraud in that state. After three years of ranking No. 1 on the national fraud index, the state slid to sixth last year.

Led by state Rep. Carlos Lopez-Cantera, a Miami Republican, and members of the Miami-Dade fraud task force, efforts are underway in Tallahassee to strengthen the law by making the crime a second-degree felony, punishable by up to 15 years in prison. It also allows county property appraisers to readjust assessed values in certain neighborhoods overrun with fraudulent sales. A proposal to create a statewide mortgage fraud task force, modeled after the Miami-Dade group, was nixed because of tight budget constraints.

“If the [Florida] law is followed diligently and people are pursued and caught and prosecuted, it is going to have an impact because the word will get around. That’s what happened in Georgia,” Sharick said.

Florida remains a flash point, Sharick said. It offers an enticing market for criminals because of its relatively transient population and large number of non-English speaking and elderly people who may be easier to deceive.

The run-up of property values made fraud easy to mask and drew the added participation of investors. Nevada ranked second in the country, followed by Michigan and California.

Copyright © 2008 The Miami Herald, Monica Hatcher. Distributed by McClatchy-Tribune Information Services.