Mortgage brokers and non-bank mortgage lenders will soon be required to file reports when mortgage fraud is suspected. The additional compliance burden is likely to lead to an increase in filing statistics even though fraud activity could actually decrease.

Non-bank residential lenders are not required to file suspicious activity reports under the new regulations, handed down by the Financial Crimes Enforcement Network, which is responsible for enhancing national security and deterring and detecting criminal activity.

“This goes back all the way to 9-11 and the congressional result and reaction, that was the USA Patriot Act,” said Richard Andreano, Jr., who heads Ballard Spahr’s Mortgage Banking practice. “What Congress had determined at that point is that people involved in 9-11 had used the U.S. financial system to fund their activities."

Mr. Andreano warned non-bank lenders that, once the regulation is in place, one of the first things regulators will look at will be anti-money laundering programs.

“Those who are found to have inadequate programs will likely face significant regulatory repercussions, including still penalties. This is one of those issues that is very near and dear to the heart of regulators.”