A spike in the risk of appraisal fraud has pushed the overall risk of mortgage fraud higher, according to the latest quarterly index. Five states were identified as potential problem spots for mortgage lenders. Chances that a borrower is lying about occupying a property, however, have declined.
Up 4 percent from the fourth quarter, the national Mortgage Fraud Risk Index was 151 in the Q1 2010 Mortgage Fraud Risk Report from Interthinx Inc. The index was up 11 percent from the same time last year. Interthinx said it was the first time since 2004 that the index exceeded 150.
Fraud risk was highest in Arizona. Interthinx explained that Arizona’s ascension to the top spot was possibly the result of migration from No. 2 Nevada.
Led by Modesto, six of the 10 worst metropolitan areas were in California — which dropped from first in the fourth quarter to third in the latest report.
Florida was the No. 4 state, and Michigan was No. 5.
The risk of property valuation fraud shot up 46 percent from a year prior. The increase was a more subdued 4 percent from the final quarter of last year. Although the national Property Valuation Fraud Risk Index was 285 — four California areas and the Phoenix metropolitan area ranged between 673 and 839.
Identity fraud risk was up 15 percent from the previous year and 10 percent from the previous quarter.
The risk of occupancy fraud, however, was down 17 percent from 12 months prior and 11 percent from the fourth quarter.
Also lower from a year ago — 5 percent — was the risk of employment-income fraud, though it was up 11 percent on a linked-quarter basis.
Interthinx pointed to Arizona, Nevada and California as well as Florida and Georgia as states that should be closely scrutinized.
“While interest rates remain low, the predominant fraud type will continue to be related to property valuation as speculative investors, ‘flopping’ and ‘flipping’ return to the market and as consumers attempt to refinance their mortgages under the Federal Making Home Affordable program despite reduced equity in their properties,” Interthinx projected. “The Fraud Risk Index will continue to rise through 2011 as a wave of ARMs, the majority of which contain negative amortization features, recast for the first time.”
