Mortgage fraud continues to escalate in Southern California, FBI figures show, raising concerns of increased defaults and foreclosures as the housing market cools down, reports the Los Angeles Times. Lenders filed 4,228 reports of suspicious activity in the region during the first 11 months of the government’s fiscal year, which ends Saturday, the FBI said. That puts 2006 on track to nearly double last year’s total. The FBI and industry experts say the trend also growing deceit by average borrowers who overstated their income, exaggerated their assets or hid their debts simply to qualify for a mortgage in the region’s sky-high housing market.
During the boom, people who lied about their income to get a loan – and then struggled to make the payments – had the option of making ends meet by tapping their newfound equity through refinancing or by selling the property for a profit. But now, with prices flattening out or declining, those without sufficient equity could be forced to sell for a loss or even default on payments. That could accelerate any downturn in the market by swamping it with foreclosed and bargain-priced properties. “This is the calm before the storm,” said one appraiser who lectures frequently about real estate fraud.