Mortgage Fraud Risk is on the Rise

Overall fraud risk increased by almost 17 percent year-over year, and is now at its highest level since CoreLogic created the index in 2010.

Keep in mind, however, that in historical terms, fraud, overall, is still relatively low, given the tighter underwriting since the mortgage crisis, and the amount of rate and term refis over the past few years.

But there’s no question which direction fraud risk is moving. In 2017, although application volumes were lower, the total number of applications with fraud is higher than last year, in fact, CoreLogic estimated more than 13,000 applications with indications of fraud in the second quarter alone.

In 2016, CoreLogic estimated an application fraud rate of 70 basis points, which is 1 in every 143 loan applications. This year, that rate increased to 82 basis points, or 1 in every 122 loan applications.

As for the types of mortgage fraud that are on the rise:

Occupancy fraud risk, which includes both traditional occupancy risk as well as reverse occupancy risk, is up by 7 percent.

Transaction fraud risk, which covers straw buyers and falsified down payments, is up almost 4 percent.

Income fraud risk increased 3.5 percent, with most of the increase happening in the first half of this year.

When it comes to fraud, the top three states are New York, New Jersey, and Florida. Both New York and New Jersey saw an increase in risk in the last year, while Florida, which has been high on the list for a while, had a decrease in risk. The states showing the greatest growth rate in fraud are lower-risk states in the middle of the country – namely Iowa, Indiana, and Missouri.

The two main drivers of why fraud risk increased this past year are:

• First, a continued increase in purchase transaction share – from 55 percent of applications to 66 percent over the last year.
• And second, more originations coming through wholesale channels. Wholesale, or brokered, loans have historically exhibited higher risks of fraud. The increase in wholesale activity is affecting the overall national fraud risk.

If these trends continue, it is likely fraud risk will continue to rise.

As CoreLogic looks to the coming year, cash-out refinances and home equity loans are being monitored. With rising home prices and homeowner equity gains, they are likely to become more popular. The fraud risk on these products is higher than it is on rate and term refinances, so this is another area to watch over time.

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