Interthinx: Purchases Greater Fraud Risk than Refinances

As the mortgage market changes from a refinance market to a purchase market over the next several months, a shift in fraud risk trends will take place during this time that lenders need to be aware of.

According to Interthinxs latest Mortgage Fraud Index report, purchases have a higher fraud risk than refinances. This is primarily the case because occupancy fraud risk increased by 15% in the first quarter compared to a year ago, the Agoura Hills, Calif.-based risk mitigation firm said.

One of the main reasons why occupancy fraud risk is higher on a yearly basis, as well as up 2% from the prior quarter, is because of the continuing investor appetite for rental properties.

Through the first quarter, occupancy fraud risk indexperpetrated primarily by investors who falsely claim the intent to live in a purchased property in order to obtain a mortgage with a lower downpayment and/or lower interest ratefor purchases is 176, while it is only 76 for refinances.

The higher occupancy fraud risk for purchases is likely due to the relative difficulty in falsifying owner-occupancy status when applying for a refinance as opposed to a purchase, Interthinx said in its quarterly report.

Overall, the national mortgage fraud risk index for 1Q13 is one percent more than the previous quarter and unchanged from the same time period last year.

California continues to be the riskiest state for mortgage fraud, Interthinx said, followed by Nevada, Florida, Washington DC, and Alaska, rounding out the top five.

The Golden State contains four of the top 10 ZIP codes with the greatest possibility for mortgage fraud, and five of the top 10 metropolitan statistical areasincluding the riskiest, Santa Barbara-Santa Maria-Goleta. Additionally, nine of the top ten cities for the potential of employment/income fraud risk are located in California.

Meanwhile, the least risky states are Mississippi, Iowa, Maine, South Dakota, Nebraska, Kansas, Kentucky, Wisconsin, Indiana and Oklahoma.

On a local level, four of the riskiest ZIP codes nationwide are located in the Chicago area, Interthinx noted.

Other highlights from the report is that property valuation fraud risk, in which a scammer manipulates property value to create equity which is then extracted from loan proceeds, was up 9% both year-over-year and quarter-over-quarter.

However, identity fraud risk and employment/income fraud risk each declined on a yearly basis, by 15% and 10%, respectively.

Clearly, this report illustrates that loan purpose is a pivotal factor in occupancy fraud risk, said Jeff Moyer, president of Interthinx. The higher occupancy fraud risk in purchases will become increasingly significant as the mortgage market changes in the coming months from a refinance-dominated market to a purchase-dominated market.

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