During the first half of the year, mortgage fraud schemes have been dominated by borrowers falsely claiming they will occupy a property being financed, according to data released by a mortgage fraud insurance provider.
Occupancy fraud was the No. 1 type of scheme reported in four of the top five hotspot states for fraud, the Prieston Group announced Tuesday. Just over half of the mortgage fraud claims it received in the first six months of the year contained some type of occupancy fraud, which occurs when borrowers — or someone acting on behalf of borrowers — misrepresents whether they plan to live at the property.
“Although occupancy fraud was the most commonly reported type of fraud during the first half of this year, we often find that claims contain multiple types of fraud and involve multiple people,” said company Chairman Arthur Prieston in a written statement. “Recognizing all the fraud in a particular file is essential in identifying fraud schemes.”
The second most common scheme involved hidden debt, which was found in 31.6 percent of all claims, followed by employment fraud with 30.3 percent and then straw borrowers in 12.9 percent of all claims, according to the announcement.
Georgia led in the number of claims filed — 16% of the nation’s total — during the first half of the year and occupancy fraud was present in 48 percent of its files, the Novato, Calif.-based insurance provider said. Georgia claims had an average FICO score of 633 and an average loan-to-value ratio of 86 percent.
For claims filed nationwide, the average FICO score was 628 and the LTV ratio 81.7 percent, Prieston reported. Full-documentation loans represented 55.5 percent of the nation’s claims, mirroring general industry trends.
Texas accounted for 10% of the nation’s claims, making it the state with the second highest number of claims, followed by Florida at 9 percent. Rounding out the top 10 were Illinois, Michigan, Tennessee, California, North Carolina, Ohio and Utah, the announcement said.
The group also noted the industry trend in the use of automated fraud detection tools as about 80 percent of claims filed with Prieston’s insurance services program involved loans screened by such systems.
“Since we are standing side-by-side with lenders absorbing fraud losses, we support any tool that can reduce the incidence of fraud,” Prieston said. “However, our internal data show that tools alone are clearly not enough.”
Prieston said training is the key to preventing and detecting fraud, noting that lenders that it has trained and employ its guidelines experience, on average, a 58 percent reduction in fraudulent claims incidence.
