Efforts to tighten lending standards appear to have had little effect so far, as reports of mortgage fraud increased 42 percent in the first quarter of 2008 from the same period of 2007.

A study released this week by the Mortgage Asset Research Institute Inc., of Reston, Va., showed that areas already affected by high rates of foreclosure were experiencing increased fraud levels.

Florida led the nation in the number of mortgage-fraud complaints, followed by California. Illinois, Maryland and Michigan tied for third place, according to the survey.

Florida and California also are among the top three states in mortgage delinquencies and foreclosures (Nevada is the third) as measured by RealtyTrac Inc., of Irvine, Calif.

Pennsylvania and New Jersey did not appear on the institute's list for the quarter, nor were they among the top 10 states in the Mortgage Asset Research Institute's Fraud Index rankings for fiscal 2007.

A law signed in July is designed to reduce fraud and predatory lending by requiring all loan officers and solicitors operating in Pennsylvania to pass a test and be licensed.

New Jersey law requires the brokerage to be licensed and at least one individual in the company to pass a similar test.

In addition, there is now a National Mortgage Licensing Registry that both states are expected to join to better control out-of-state lenders.

"It will take a couple of years even after the national licensing goes into effect to clean it up," said Fred Glick, a Center City mortgage broker and Realtor.

Pennsylvania and New Jersey also fared well in a report released yesterday by the Consumer Federation of America, which said the two states were among eight and the District of Columbia that have laws protecting consumers against abusive lending practices for all small-dollar loan products.

In both states, the $250, two-week payday loan and the $300, one-month auto-title loan are prohibited, while interest rates are capped on the $500, six-month loan and the $1,000, one-year loan.

In areas where homeowners are often borrowing money to meet mortgage payments, loan regulation is critical.

"Now that the economy is so tight for cash-strapped consumers, it is more important than ever for states to provide reasonable protection against rate gouging by small lenders," said Elizabeth Renuart, a lawyer with the National Consumer Law Center.

In the top five states on the research institute's list, most of the fraud complaints originated in metropolitan areas.

There was evidence of identity theft in many of these transactions, the institute reported.

More Information

Borrowers who suspect mortgage fraud or who believe they are being gouged by small-loan rates can contact the Pennsylvania Attorney General's Office Bureau of Consumer Protection at 1-800-441-2555 or the N.J. Attorney General's Office Division of Consumer Affairs at 1-800-242-5846.

Contact real estate writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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