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Share of Fraudulent Mortgage Applications Rises

Risk of mortgage fraud climbs from year earlier

Oct. 28, 2014

By Mortgage Daily staff

As the volume of loan originations has diminished, so has the number of loan applications containing mortgage fraud. But the share of fraudulent applications has increased. Although states like Florida experienced a substantial increase in fraud risk, other states -- including the Grand Canyon State -- have seen a big improvement.

Approximately 11,100 loan applications were estimated to have contained mortgage fraud during the second quarter. That worked out to 0.69 percent of all applications.

While the number plunged from the same three-month period a year previous, when an estimated 19,700 loan applications involved some sort of fraud, the share worsened from 0.67 percent.

These were some of the details discussed in the CoreLogic 2014 Mortgage Fraud Report October 2014.

An estimated $19.8 billion in fraudulent applications were submitted during the 12 months ended June 30.

The CoreLogic Mortgage Application Fraud Risk Index was down 4.1 percent from the first quarter but up 3.2 percent from the second-quarter 2014.

Among several factors cited by CoreLogic that impacted fraud risk was the 3.2 million-unit increase in new single-family rentals since 2006 --raising the opportunity for occupancy fraud.

Still, the risk of occupancy fraud was down 1.5 percent on a year-over-year basis, though it climbed 3.3 percent on a quarter-over-quarter basis.

Another factor is the value discrepancies between properties with deferred maintenance and nearby properties with rapid appreciation -- increasing opportunities for valuation fraud and fraud-for-profit schemes. This factor was even more significant in judicial foreclosure states and high-vacancy areas.

As a result, the risk of valuation fraud has risen 3.3 percent from the second-quarter 2013. However, this risk category was down 8.7 percent compared to the first quarter of this year.

CoreLogic noted that mortgages with loan-to-value ratios between 80 percent and 100 percent have seen consistent increases in fraud risk since 2010. This was predominantly loans insured by the Federal Housing Administration.

Employment application fraud risk decreased 1.0 percent from three months earlier and 2.0 percent from a year earlier.

The risk of loan applicants lying about their income retreated 4.0 percent between the second-quarter 2013 and the second-quarter 2014.

Applications with identity fraud were 4.9 percent less likely than in the first quarter of this year and 18.5 percent less likely than in the second-quarter of last year.

Improving even more was the risk of undisclosed debt on loan applications -- falling 5.1 percent from the prior period and plunging 22.7 percent from the year-earlier period. CoreLogic speculated that the ability-to-repay rule impacted this category.

In Florida, the risk of application fraud soared 73 percent from the second-quarter 2013 -- the most of any state. Florida is consistently among the states with the worst delinquency and foreclosure rates. Three of the five-worst metropolitan areas were in Florida.

Also seeing large increases in fraud risk were New Jersey (62 percent), New York (58 percent), Mississippi (35 percent) and Connecticut (34 percent).

Arizona saw a decline of 45 percent -- the biggest improvement of any state. Other states with a more than one-quarter improvement were West Virginia; Virginia; Washington, D.C.; and Colorado.

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