Mortgage fraud risk sees substantial increase in Q2 2018

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The risk of a borrower overstating their income, misrepresenting how they intend to use a property, or otherwise committing mortgage fraud was up considerably in the second quarter of 2018, according to the property analytics company CoreLogic.

In its latest Mortgage Fraud Report, CoreLogic determined that mortgage fraud risk was up 12.4 percent compared to the previous year. An estimated one in 109 mortgage applications during the second quarter of the year had indications of fraud, compared to one in 122 in the second quarter of 2017.

CoreLogic says the risk of mortgage fraud has increased for seven consecutive quarters and has been on a long-term upward trend since the third quarter of 2010. The company attributed the latest increase to a decline in low-risk mortgage applications, such as rate reduction refinances.

"Because home prices are rising and demand for homes is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage," said Bridget Berg, principal of fraud solutions strategy at CoreLogic. "Undisclosed real estate liabilities, credit repair, questionable down payment sources, and income falsification are the most likely misrepresentations."

Income fraud risk had the largest increase, up 22.1 percent compared to the previous year. This type of fraud involves the misrepresentation of income used to qualify for a loan, including its amount, continuance, existence, or source.

The risk of occupancy fraud had a yearover-year increase of 3.5 percent. Borrowers who commit occupancy fraud misrepresent whether they will use the property as a primary residence, secondary residence, or investment property. Doing so affects what programs, pricing, and underwriting are applicable to the mortgage.

Transaction fraud risk inched up 0.6 percent. This fraud occurs when the nature of the transaction is misrepresented, such as falsified down payments or undisclosed agreements between parties.

There was less risk of other types of mortgage fraud during the second quarter of 2018. Undisclosed real estate debt fraud, in which an applicant intentionally fails to disclose additional real estate debt or past foreclosures, fell by 11.4 percent compared to the previous year. Property fraud risk, involving the deliberate misrepresentation of information about the property or its value, ticked down 0.1 percent.

CoreLogic did not update its figures on identity fraud risk, where an applicant alters their identity or credit history, uses a false identity, or uses stolen personal information to apply for a mortgage. The company says many consumers froze their credit files in the second quarter of 2017 due to major data breaches, potentially affecting the consistency of reporting on this type of fraud.

New York, New Jersey, and Florida continued to be the three states with the greatest risk for mortgage fraud, staying in the same positions as last year. New York had the greatest risk, with a yearover-year increase of 8 percent. New Jersey had the second greatest risk and a year-over-year increase of 14 percent, while Florida's risk grew by 7 percent.

Among the 10 states with the highest mortgage application fraud risk, the annual increase in risk was greatest in New Mexico, where risk was up by 45 percent. Mortgage risk in Illinois increased by 33 percent over the second quarter of 2017. Oklahoma moved into the list, displacing Louisiana, with a 28 percent year-overyear increase in mortgage fraud risk.

Metro areas with the most significant annual growth in mortgage fraud risk included Oklahoma City (70 percent), El Paso (65 percent), and Springfield, Mass. (62 percent). The greatest declines occurred in Rochester, N.Y. (34 percent), Madison, Wis. (28 percent), and Syracuse, N.Y. (26 percent).