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A buyer lies on a loan application. A crook steals someone's Social Security number and uses it to buy a home.

Mortgage fraud takes many forms in Utah, one of the loan fraud capitals of the United States. It can't get much worse here. According to data collected by the Mortgage Asset Research Institute, or MARI, Utah on a per-capita basis ranks second in the nation for loans originated in 2005 that contained alleged fraud or serious misrepresentation. Florida was No. 1.

"Utah's fraud problems have given it a consistently high ranking despite increased requirements for professional licensing and education and more rigorous enforcement," according to the MARI report.

The high level of fraud has prompted Utah Rep. Paul Ray to try for a second year to get get the Legislature to approve a bill aimed at reducing loan fraud in Utah.

"The focus right now is on violent crimes and that makes sense because you want dangerous people off the street," Ray said. "But we need to put more resources into a crime that can ruin lives and hurt the entire economy."

Ray's bill, which has yet to be numbered, would make the act of mortgage fraud a criminal offense. Typically, the state prosecutes mortgage fraud by charging people with ancillary offenses, such as forgery.

His bill, which would classify mortgage fraud as a second-degree felony, also would assign a prosecutor and two investigators to this specific type of crime.

Ray said too many crooks get away with mortgage fraud. "Mortgage fraud cases have to be extremely [hard] to get prosecuted because our prosecutors are so busy," he said.

By various estimates, an array of state and federal agencies have hundreds of cases of loan fraud that could be investigated and prosecuted if there were more resources.

Mortgage fraud certainly aggravates Utah's already high rate of home foreclosures and bankruptcies. Mortgages tainted by some type of fraud are much more likely to end up in default.

As a result, consumers in Utah 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, Ray said.

So why does Utah have such a high rate of fraudulent activity? No one is sure. One suspicion is that unscrupulous lenders try to qualify too many heavily indebted Utah families for homes they cannot afford. Another is the makeup of Utah's trusting population, where many people place a great deal of trust in community and religious leaders and authorities figures.

Jim Malpede of the FBI in Salt Lake City said he isn't sure why, but mortgage fraud has worsened over the past year.

He cites the MARI report. Utah had the third-highest rate of loan fraud among all states from 2001 to 2003. In 2004, the state slipped to No. 4. But in 2005 it was back up, this time to No. 2.

"If law enforcement had more resources to address mortgage fraud in Utah they would be very, very busy," Malpede said.

His agency has a backlog of cases, though he is not sure of the exact number. But one thing is for sure: "We don't have the resources to investigate all of the allegations of mortgage fraud we receive," he said.

Kirk Torgensen, chief deputy attorney general, backs Ray's measure and said his office would welcome additional resources.

"We want to send a message that mortgage fraud in the state will be investigated and prosecuted aggressively," he said.

Although the cases of loan fraud are diverse in the nature, lately "equity skimming" seems to be a popular type, said Derek Miller, director of Utah's Division of Real Estate. In an equity skimming scheme, crooks buy a home - many times with someone else's private information. They then get an inflated appraisal for the property so they can get cash through a home equity loan. Then they disappear.

Ray's bill, if passed, would be one of many measures designed to address the problem of loan fraud that have been passed in recent years.

The Real Estate Division has instituted some tougher rules for loan officers and managers designed to make them more accountable for the loans they originate.

For example, under legislation passed last year, lending managers who supervise mortgage loan officers are now required to obtain a license and be accountable for the lending officers they supervise. And all loan officers must now be affiliated with a supervisor.

Mortgage fraud capital

Utah is ranked No. 2 in a per-capita ranking of home loans originated in 2005 that contained alleged fraud or serious misrepresentation. Florida was No. 1.



2005 - No. 2

2004 - No. 4

2003 - No. 3

2002 - No. 3

2001 - No. 3

* Salt Lake Valley families say they were tricked.