Could Subprime Mortgage Crisis Turn Desperate Homeowners Into Arsonists?

Because the questionable fire case that Mr. Rioux mentioned is under continuing investigation, he could not provide any specific identifying details. However, he did say the two-story home was in an inner-city area and was refinanced about a year ago by an owner with money problems who eventually qualified for a balloon mortgage.

The homeowner was put in the subprime market with an adjustable rate of 7.5 percent, and was notified shortly before the fire that his mortgage charge would be going up to 14.5 percent.

"In this case, we're looking at arson motive and opportunity," explained Mr. Rioux, pointing to the staggering increase in monthly payments.

Neighbors called in the alarm on the daytime blaze, which pretty much destroyed the house.

"We do believe we have motive, and now we're looking at opportunity. The insured was within close proximity to the fire," according to Mr. Rioux.

A few cases such as this, he observed, might not necessarily be a trend indicator. Despite growing economic strains and the growing number of people caught up in crushing subprime mortgage situations, it is hard to say if arson-for-profit is growing as a way out for such stressed homeowners. "But as 2008 progresses, we will see if this is a trend or not," he said, as more people are at risk of losing their houses via foreclosures.

"Keep in mind the flip side," he advised, noting that "the subprime [loan market] extends to auto."

"Will we have more cars going up in flames and disappearing?" he wondered, adding that his unit is looking at potential auto fraud claims and the possibility of an increase in so-called "owner giveup" cases. "Usually when a car is burned, that's a red flag," said Mr. Rioux.

One expert in the field who has difficulty finding a correlation between hard times in the subprime market and arson is John Hall, assistant vice president of research and analysis with the Fire Analysis and Research Division at the National Fire Protection Association, who holds a doctorate in operations research and the mathematics of decision-making.

In a recent paper looking at whether there is a link between fires and economic conditions, Mr. Hall found that for nearly three decades, intentional fire rates have sometimes been level, but there have been no periods of a sustained upward trend.

There have, he wrote, also been "no notable increases in years with recessions or other economic shocks." He noted that half of arson arrests involve juvenile and chronic fire-setters, with vandalism, psychological disorders, and even revenge or spite more often the motive for burning property than money considerations.

With arson-for-profit in third place as an impetus for fire-setting, Mr. Hall said it becomes a subjective issue as to how big a problem financially motivated fires really is.

That said, in difficult financial times, Mr. Hall wrote, it is not unusual for local fire officials and insurance adjusters in some communities to report apparent jumps in some types of arson.

His study, which looked at the recession year of 1982, found there was no period around that year when national arson numbers appeared to go up substantially.

The recession and oil price shock year of 1990 also showed no spikes, while in 2000 and 2001, vehicle intentional fires actually declined, and sizes of increases and decreases were not notable against normal year-to-year variation.

However, Mr. Hall noted that none of his analysis precluded the possibility "that there have been increases in arson, driven by economics within particular communities, particular states or particular industries."

Joseph Toscano, a certified fire investigator and representative of the International Association of Arson Investigators, would heartily agree to that last statement.

Considering the current challenging economic situation for many people, he drew an analogy to meteorology.

"If you were a weather person and saw indicators of fronts converging, it would be a prudent assumption that these things could add up to a nasty situation. It's sort of a common-sense approach," he said.

Mr. Toscano–citing the extensive collapse of the home real estate market that has caught thousands of leveraged buyers up short, along with revelations about extensive mortgage fraud–commented that with those factors converging, "it's looking at the perfect storm."

In his view, it is important not to wait for any statistics to bear out a trend before taking proactive steps to mitigate against such potential frauds.

Common sense, he said, tells you that there are some people who will resort to fire to seemingly solve their financial problems.

"We're just too ripe. Too many factors are coming into play that are just too negative," said Mr. Toscano.

He said he has heard estimates that the nation could see two million foreclosures, combined with the fact that cash-strapped cities might help close budget gaps by reducing fire investigation resources while businesses cut back on important maintenance that could avert accidental fires. "There's nothing positive," he said.

Mr. Toscano regards Mr. Hall as a foremost expert in his field but is wary of dismissing the growing financial distress of many homeowners as a factor in arson.

"I am not sure we ever had the unique driving factors we have now," he said. "I'm basing my comments on the hundreds of thousands of years experience in our membership."

He also noted that the data on fires in some cases can be flawed, because when initial fire reports are filed, the cause may not be indicated as arson, which might only be discovered "weeks after the report is filed."

At the time he was interviewed for this article in early February, Mr. Toscano was in Las Vegas attending the Insurance Committee for Arson Control's investigation training seminar, which involves more than a dozen carriers. He said prosecutors he spoke with said consistently "that they are seeing a spike in arson."

Veteran that he is, Mr. Toscano remembers the 1970s, when arson in cities was rampant and it was an easy crime to get away with.

"It was brash and bold," he recalled, with landlords who would go into depressed areas, then "buy a building, and 30 days later it was gone."

Until arson-for-profit became a full-fledged scourge, insurers were doing little to mitigate against the crime, and "there was an air of tolerance in the industry. We were not aggressively dealing with it until it became an epidemic."

However, with growing pressure on homeowners who have soaring mortgage rates and the threat of foreclosure hanging over their heads, the insurance industry can't afford to wait and must act now to be prepared to investigate for such motives after a fire, or pay the consequences in skyrocketing claims, he warned.