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Risk of Mortgage Fraud Subsides

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U.S. mortgage loans are less likely to involve mortgage fraud than they were three months ago, according to a quarterly index released Tuesday. But the risk of identity fraud was worse.

The national fraud risk index was 145 in the Q2 2010 Mortgage Fraud Risk Report from Interthinx Inc. An index of 100 is considered a “nominal” level of fraud risk.

The risk level was down 3 percent from three months earlier but 12 percent higher than the same time last year.

The index reflects data collected from applications processed through the Interthinx FraudGUARD system and considers 40 factors.

Nevada was the state with the highest fraud risk, replacing Arizona.

California was host to seven out of the top-ten metropolitan statistical areas with the highest risk. Modesto, Calif., topped the list of MSAs with an index of 285, while nearby Stockton and Vallejo-Fairfield respectively held spots two and three.

“All three of these MSAs experienced a surge of new construction and population inflows during the real estate boom as first-time homebuyers fled the areas in and around San Francisco in search of affordable housing,” the report said. “These MSAs are now experiencing extensive foreclosure activity and severe price declines.”

The worst zip code was in Chicago; 60621 had a Mortgage Fraud Risk Index of 500.

The lowest risk of fraud was in Maine.

On a countrywide basis, mortgage fraud was around 10 percent more likely on purchase transactions than refinances. The refinance risk index was 138 compared to 151 for the purchase index. Nevada’s 295 refinance index was highest, while Arizona’s 231 purchase risk was also highest.

Property valuation fraud proved to be less of a risk in the latest period than in the prior quarter. The Property Valuation Fraud Risk Index fell 4 percent from the first quarter to 273, though it was 21 percent higher than a year ago. The highest MSA valuation fraud index, 739, was in Modesto, Calif.

Since late last year, no trend has developed with the national Employment/Income Fraud Risk Index, which was 85.

The risk of identity fraud rose 10 percent for the second consecutive quarter. The latest Identity Fraud Risk Index was 180.

Occupancy fraud risk was down by 9 percent, with the Occupancy Fraud Risk Index coming in at 71. Interthinx attributed the decline to “investors’ increasing use of non-bank funds and private lending consortia to complete their purchase transactions.”

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