While mortgage fraud represents less of a threat than it did six years ago, it remains a looming risk for lenders, according to a new report. The report found that transactions completed through the expanded Home Affordable Refinance Program are riskier than non-HARP refinances. An expected increase in short-sale transactions is expected to have a negative impact on fraud risk.
Forecasts for 2012 residential originations from economists at Fannie Mae, Freddie Mac and the Mortgage Bankers Association range from $1.7 trillion to $2.0 trillion.
Fraudulent mortgage originations are expected to account for around $13 billion of this year’s overall residential loan production.
In 2011, when total originations were estimated at between $1.4 trillion and $1.5 trillion, fraudulent loans accounted for an estimated $12 billion.
The findings were discussed in the 2012 Mortgage Fraud Trends Report – CoreLogic Fraud Trends and Index. CoreLogic, which claims to maintain “one of the largest mortgage fraud and risk loan databases available,” said its National Fraud Index contains information from more than 93.5 million loan applications that cover 75 percent of the origination market. The applications are categorized based on whether the fraud is suspected or confirmed.
The report indicated that mortgage fraud spiked around 2006, when $28 billion in fraudulent mortgages were originated. But from the peak until 2009, mortgage lenders reduced fraudulent mortgage activity. CoreLogic attributed the reduction to a shift by lenders to a consortium-based approach to fraud detection.
“By 2011, mortgage fraud risk had stabilized both in terms of total volume and percentage of originations,” the report stated. “However, recent changes in the mortgage market, as well as behavior patterns of fraudsters, appear to be contributing to several disturbing new trends driving an increase in the CoreLogic National Fraud Index.”
Nevada ranked as the riskiest state. After that was Arizona, then Georgia, Michigan and Florida.
Chicago had the worst risk ranking of any city, followed by Oakland, Calif.; Atlanta; and Orlando, Fla.
Borrowers on HARP 2.0 transactions continue to represent significant risk because they typically have “less skin in the game.”
Borrower who completed a modification through the Home Affordable Modification Program present similar risks.
Fraud involved in distressed sales remains high as servicers work through the shadow inventory. CoreLogic expects REO sales to give way to short sales — a development that will motivate more investors and other players to deceive mortgage lenders. An estimated $325 million in losses is expected from short-sale fraud in 2012. A consortium-based short-sale monitoring solutions is recommended to address this risk.
CoreLogic reported that its Employment Fraud Index jumped 50 percent between the first quarter of last year and the first quarter of this year. Nevada had the highest risk for employment misrepresentation and the highest unemployment rate. Florida and Arizona fared similarly. CoreLogic predicts that lingering labor market weakness could keep the category elevated for the rest of 2012.
The report projects that risks from employment and income fraud will remain a challenge as borrowers seek to take advantage of record-low interest rates while facing employment obstacles.
A 44 percent surge was reported for the Identity Fraud Index. The risk of identity theft was greatest in Nevada, then Mississippi and Alaska.
CoreLogic said that Suspicious Activity Reports are on pace to reach 117,106 this year — an all-time high.
