The risk of fraud in mortgage applications increased 16.9 percent in the second quarter compared to the second quarter of 2016, according to CoreLogic’s latest Mortgage Fraud Report.
The analysis found that during the second quarter of 2017, an estimated 13,404 mortgage applications, or 0.82 percent of all mortgage applications, contained indications of fraud, as compared with the reported 12,718, or 0.70 percent in the second quarter of 2016. The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter.
The report says that the continued shift to a purchase market is a key factor in the rise in application fraud risk due to stronger motivations and increased opportunities to commit mortgage origination fraud. A second factor leading to the fraud risk was a 48 percent increase in the share of loans originated through wholesale channels, the report found. According to CoreLogic, wholesale applications have shown a higher risk level than retail channels.
“This past year we saw a relatively large increase in the CoreLogic National Mortgage Application Fraud Index,” said Bridget Berg, principal, Fraud Solutions for CoreLogic. “If the factors that influenced the increase continue, including a shift to purchase transactions and growing wholesale channel origination activity, it is likely that mortgage application fraud risk will continue to rise as well. Fraud on cash-out refinance transactions and home equity loans may become more of a factor in the coming years as home values and equity rise.”
According to the report, New York has the highest level of application fraud risk. Florida, which held the top spot for the last several years, dropped to number 3, thanks to a 3 percent decrease in application fraud risk from 2016.
States with the greatest year-over-year growth in risk include:
According to the report, although they have the highest growth in risk, except for Louisiana, the other four states are still outside the top 25 in terms of overall risk.
CoreLogic found that Jumbo refinance loans are the segment showing the greatest fraud risk increase by loan type.
Occupancy Fraud Risk
Up 7 percent
This fraud occurs when mortgage applicant deliberately misrepresent their intended use of a property (primary, secondary or investment)
States with largest YOY increase: Hawaii, Colorado, Nevada, Montana and Nebraska
Transaction Fraud Risk
Up 3.9 percent
This fraud occurs when the nature of the transaction is misrepresented, such as undisclosed agreements between parties and falsified down payments. This risk includes third-party risk, non-arm’s length transactions and straw buyers
States with the largest YOY increase: South Dakota, Wyoming, Montana, New Hampshire and North Dakota
Income Fraud Risk
Up 3.5 percent
This fraud includes misrepresentation of the existence, continuance, source or amount of income used to qualify.
States with largest YOY increase: Alaska, Indiana, Maine, Alabama and Utah
Property Fraud Risk
Down 1.9 percent
This fraud occurs when information about the property or its value is intentionally misrepresented.
States with largest YOY increase: Wyoming, Washington, D.C., Vermont, New Mexico and Indiana
Undisclosed Real Estate Debt Risk
Down 2.7 percent
This fraud occurs when a loan applicant intentionally fails to disclose additional real estate debt such as mortgages and real estate taxes.
States with largest YOY increase: North Dakota, Nebraska, Iowa, Wyoming and Indiana
Identity Fraud Risk
Down 7.3 percent
This fraud occurs when an applicant alters, creates or uses a stolen identity to obtain a mortgage.
States with largest YOY increase: Maine, Alaska, Michigan, Montana and South Dakota
Multi-Closing Fraud Risk
According to the report, multi-lien fraud is a profitable scam that takes advantage of the lag between closing and recording to solicit multiple loans on a property. A spike in this fraud risk was reported in 2014. This activity decreased in 2015 and 2016, but CoreLogic projects this to increase in 2017.