Among the findings from two mortgage fraud studies is that an increase in the risk of mortgage fraud was mostly due to a government refinance program and loans insured by the Federal Housing Administration. Another finding was that real-estate-owned sales represent more of a problem than short sales. Las Vegas and Nevada respectively represent the city and state with the highest risk of mortgage fraud.
In a third-quarter update to its 2010 Mortgage Fraud Trends Report, CoreLogic said mortgage fraud has risen 20 percent as of June 30 since the rate of fraud bottomed out in early 2009.
The report said the findings were based on a representative data sample of 7 million applications ranging from 2005 to June 30. The sample was culled from more than 80 million mortgages originated since 1996 that was provided by members of CoreLogic’s Mortgage Fraud Consortium. The company claims that nearly two-thirds of the origination market is reflected in its data.
“FHA and the Home Affordable Refinance Program accounted for most of the increased risk in 2009 and 2010,” CoreLogic said. “Real-estate-owned sales are a growing area of suspicious activity. In fact, they present a larger risk to the mortgage industry than short sales.”
Lenders unnecessarily lose an estimated $310 million in short-sale transactions each year, according to the report.
Around 4.2 percent of REO transactions were deemed risky.
A disproportionately high share of suspicious resales involve investment companies, CoreLogic said.
While income fraud has fallen by 8 percent, undisclosed debts fraud is up 9 percent and employment fraud is 5 percent worse. Employment and undisclosed-debt fraud are the fastest-growing segments.
The risk of employment-income fraud was up 23 percent from 2009 and 11 percent more than the prior quarter, according to Intethinx’s third-quarter Mortgage Fraud Risk Report.
The Interthinx report indicated that the National Mortgage Fraud Risk Index was 144, about the same as a year earlier. The report factored in more than 40 indicators of fraud.
Interthinx found that the national risk of identity theft has jumped nearly a quarter during the past year and was 5 percent worse than then second quarter.
Interthinx suggests that the increases in identity theft and employment-income fraud indicate that “fraud for property” is rising.
Property valuation fraud risk has fallen 7 percent over the past year and was down 4 percent from the second quarter. The risk of occupancy fraud fell 13 percent from a year earlier and was 7 percent lower than the prior three-month period.
The highest state index was Nevada’s: 254. The No. 2 state was Arizona, with a 214 index, then California’s 190.
The riskiest city was Las Vegas — with an index of 273. Riverside-San Bernardino-Ontario, Calif., followed with a 267 index, then Vallejo-Fairfield, Calif., where the index was 259. Half of the 10 cities with highest risk indices were in California.
“The same mortgage brokers, real estate agents, and other professionals are frequently involved in multiple fraudulent transactions involving ‘creative financing’ and/or misrepresentation of borrower qualifications,” Interthinx explained. “These professionals encourage borrowers to lie, or lie on their behalf, so that the loans will close and the professionals will make their commissions and fees.”
