Utah high in mortgage fraud

Utah's reputation as a hotbed for mortgage fraud just got worse with the release of a report Thursday ranking the state fifth nationally for loans showing signs of fraud or misrepresentation, up from No. 11 a year earlier.

The new report, based on 2007 data, was compiled by the Mortgage Asset Research Institute, a clearinghouse for fraudulent home-loan activity reported by mortgage lenders and others. The institute is part of information services company ChoicePoint.

In the report, Utah was the third worst state for mortgage fraud in 2003, but for three years the trend was in the right direction: The state fell to No. 6 in 2004, No. 7 in 2005 and down as far as 11th in 2006 (according to revised data, which earlier showed Utah ranked as high as No. 1).

The agency does not disclose the number of fraud reports per state or nationally. Instead, it releases a fraud index based on the number of fraud reports for each state and the total number of loans made.

A fraud index of zero would indicate no reported fraud from a state, while an index of 100 would mean that the state has a level of fraud expected based on the number of new loans originated in the state. Utah's index of 156 means that the state has a level of home loan fraud 56 percent higher than what would be expected.

No one is sure why Utah has such a high rate of fraudulent activity. One suspicion is that unscrupulous lenders try to qualify too many heavily indebted Utah families for homes they cannot afford. Another is Utah's trusting population, which tends to place a great deal of trust in people such as mortgage loan officers, even if they suggest stretching the truth to qualify for a home loan.

"Whether we're 11th or 5th, we're too high," said Mark Steinagel, director of the Utah Division of Real Estate.

On Thursday, the division announced it was revoking the licenses of two mortgage brokers and an appraiser for mortgage fraud.

The department said that Dean Dalton Gifford, an appraiser from St. George, allegedly inflated property values. He faces a $5,000 fine and cannot apply for another appraiser license in Utah for five years.

Eduardo Acosta, a mortgage broker from Salt Lake City, faces a $2,500 fine for allegedly submitting false employment information for verification on a loan application. He cannot apply for a mortgage loan officer license again for two years.

And Gustavo Orellana, a mortgage broker from Orem, allegedly provided a fake employment offer letter to help a client get approved for a home loan. He faces a $2,500 fine and cannot apply for another mortgage lending officer license for two years.

Utah has taken a number of steps in recent years to combat this type of fraud.

Mortgage fraud tends to get worse during real estate downturns, when there is more pressure to get deals done, officials said Thursday. Fraud also can be more prevalent in times when it is more difficult to qualify for a home loan, as it is now.

Steinagel said the formation last year of a state mortgage fraud task force will supplement a number of steps the legislature has taken in recent years to provide better oversight of loan officers and others in the industry. So will Senate Bill 134, which, among other things, assigns to the state Attorney General's Office a prosecutor dedicated to mortgage fraud.

Utah's high fraud rate affects consumers. Utah lenders say residents pay more for their home loans - about one-quarter of a percentage rate higher - than people in other parts of the country because of the high level of fraud and increased risk of default.

lesley@sltrib.com

Utah is ranked No. 5 in a per-capita ranking of home loans that originated in 2007 that contained alleged fraud or serious misrepresentation.

The top 5:

1. Florida

2. Nevada

3. Michigan

4. California

5. Utah

Source: ChoicePoint