Last year, $12 billion in fraudulent mortgage loans were originated, according to a new report. Compared to 2010, the rate of fraud this year is expected to be mostly flat. But there has been a shift from identity theft to fraud committed on distressed sales. Government mortgages have been found to carry more risk than their conventional counterparts.
The risk of mortgage fraud was unchanged between 2009 and 2010. The stabilization followed a 20 percent increase from 2008 to 2009.
That was according to the CoreLogic Fraud Index released Thursday. The index is based on an analysis of data from more than 90 million loans including fraudulent mortgages. CoreLogic claims that its data reflect 65 percent of total originations and is “the largest collection of mortgage loan data available for fraud and risk analysis.”
The report indicated that the level of mortgage fraud in last year’s originations was $12 billion.
This year’s rate appears to be on track for a similar trend — though lower loan production will leave the total at just $7.4 billion.
CoreLogic noted that that the 2011 estimate is around 75 percent less than in 2005.
A closer look at this year’s activity indicates that property fraud was up 262 percent from the first-quarter 2010 to the first-quarter of this year as a result of fraudulent flips and short-sale flops. Most of the increase occurred in the second quarter of last year.
Losses from fraudulent short sales could be costing mortgage lenders as much as $375 million a year. Helping to drive the losses are crooked real estate agents who, along with other players, arrange same-day flips with foreclosure and short sales. The agents take advantage of overwhelmed servicers and intentionally withhold potential offers.
“Most of the suspicious flip transactions appear to be well executed events with investment company buyers responsible for a disproportionate percentage of the risky transactions,” the report said.
Limited liability corporations are involved in 28 percent of all suspicious short sales.
The risk of undisclosed debts was up 19 percent from 2010, while occupancy fraud risk rose 10 percent.
But identity fraud tumbled 45 percent during the same period, and employment fraud fell 11 percent.
CoreLogic said that Chicago has the highest risk of mortgage fraud based on zip code rankings. Washington, D.C., followed, then Brooklyn, N.Y.; Atlanta; and Jamaica, N.Y. The risk of fraud in these areas is 30 percent higher than the national risk level.
The number of suspicious activity reports filed by financial institutions where mortgage fraud is suspected was 70,472 last year, higher than 2009’s 67,507 SARs and skyrocketing from just 4,695 in 2001. But CoreLogic warns that this is not necessarily a result of more fraud but a reflection of additional investigations by large lenders who were forced to repurchase mortgages — many that were originated at least two years prior to the SARs filing.
Much of the fraud that is being reported this year happened in 2006 and 2007 — when CoreLogic’s index was at its highest. The number of SARs filings is expected to continue rising until originations from those years make their way through the system.
Because of the high loan-to-value ratios on loans insured by the Federal Housing Administration, these loans represent significantly more risk than conventional mortgages. The additional risk was attributed to less stringent criteria and the requirement of less “skin in the game.”
