A quarterly study on mortgage fraud found that the risk of fraudulent appraisals has dropped significantly over the past year. The overall risk of mortgage fraud has barely changed.
A 2 percent rise in the Mortgage Fraud Risk Index left it at 144, according to the Q1 2011 Mortgage Fraud Risk Report from Interthinx.
The index has fallen, however, 5 percent over the past year.
The likelihood that property valuations will be manipulated has declined 22 percent during the prior 12 months, with the Property Valuation Fraud Risk Index coming in at 223. Valuation fraud can occur at origination with inflated appraisals or on short-sale transactions with artificially low estimates.
Compared to the final quarter of last year, the risk of appraisal fraud was down 12 percent.
Influencing the decline in the risk of appraisal fraud was the Home Valuation Code of Conduct, which was created through a March 2008 agreement between Fannie Mae, Freddie Mac and New York’s attorney general. The code prohibited communication between loan production employees and real estate appraisers and led to an explosion of appraisal management companies.
HVCC became effective on May 1, 2009, and was replaced in October 2010 by the Appraiser Independence Requirements.
Also impacting the reduction in the risk of appraisal fraud was the Federal Housing Administration’s February 2010 implementation of its own appraisal requirements that were similar to HVCC.
The problem with valuation fraud was worst in the Las Vegas metropolitan statistical area, where Interthinx’s index was 524. Still, Sin City saw a 20 percent drop in this category since the fourth quarter.
The risk of identity fraud has grown 10 percent during the past year, though it was down 5 percent for the quarter. The U.S. index was 181, while the Cleveland MSA’s 459 was the highest of any area in this category.
Based on all types of mortgage fraud, Nevada’s 225 index was the highest of any state. Arizona followed with an index of 205, then 190 in Florida and 176 in Hawaii. California was the state with the fifth-highest index.
By MSA, the highest score was 249 in Modesto, Calif., though the area improved 23 percent over the past year. Modesto had the second-highest risk of valuation fraud, with an index of 513.
The Miami area’s overall index was 245, followed by Las Vegas’ 243; Stockton, Calif.’s, 237; and 230 in California’s Inland Empire.
Among zip codes, Chicago’s 60636 was the riskiest in the nation. The index for the zip code was 533.
The risk of occupancy fraud, which occurs when investors attempt to secure more favorable owner-occupied loan terms even though they don’t intend to live in the property, jumped a quarter from the prior report. The index was 80 on a national basis and more than double that in the Miami area — the worst in the nation.
“After four consecutive quarters of decline, the national Occupancy Fraud Risk Index jumped by 25 percent, erasing the decreases it experienced over the last year,” the report said. “Many of the low risk states in Q4 2010 experienced significant escalations in mortgage fraud risk driven by increases in Occupancy Fraud risk and a disproportionately large increase in Employment/Income Fraud risk.”
At 102, the risk of employment or income fraud was nominally higher on a national basis compared to the fourth quarter and up 16 percent from a year prior. Honolulu’s 179 index was highest in this category.
