Incidents of fraudulent mortgage applications remained stable
in the second quarter of 2015. CoreLogic,
in its Fraud Report for the quarter, estimates
the number of applications with indications of fraud at 12,814. This is an
increase from the 11,100 applications that appeared fraudulent to some extent in
the same quarter of 2014. While the numbers are large, as a percentage of all
applications the share shrunk from an already miniscule 0.69 percent to 0.67
CoreLogic’s Mortgage Application Fraud Risk Index, decreased
by 8.9 percent nationally from its Q2 2014 level. Despite the size of that annual change the
company says the risk has stabilized. It
increased only 0.7 percent from the first to the second quarter of this year.
remains the state with the highest overall fraud risk with an index just over
250 (we could not find a national index number in the report) while New York
has moved from third position last year to second place this year with an index
around 175. Rounding out the top five
are Hawaii, New Jersey, and Nevada.
The largest increase in risk, 17.1 percent, was in Louisiana
followed by the District of Columbia at 9.1 percent, an increase large enough
to push it into the top ten in 6th position. Hawaii, Delaware, and Pennsylvania all had
increases in the 7 percent range.
CoreLogic’s index is based on data for six indexes that look
at fraud related to employment, identity, income, occupancy, property, and
undisclosed mortgage debt. Incidences of
all of these types of fraud fell in the second quarter except for undisclosed mortgage
debt which rose 1.7 percent compared to the second quarter of 2014 and was up
0.8 percent from the first quarter of 2015.
Employment application fraud occurs when an
applicant intentionally misrepresents job-related information such as name of
employer or length of employment. This
type of fraud decreased by 7.0 percent year-over-year and by 1.6 percent
Misrepresentation of income decreased on
applications by 7.3 percent since the second quarter of 2014 although it
increased for two quarters during that interval. It was down 3.1 percent compared to Q1 of his
Property application fraud was down 7.4 percent
year-over-year. While it was up early in
the 12 month period it fell by 13 percent from the first to second quarters of
this year. This type of fraud occurs
when the property value of collateral is intentionally misrepresented as being
higher than market value.
Occupancy application fraud, which occurs when
an applicant deliberately misrepresents his or her intention to occupy a property
to obtain a better rate or terms, decreased by 17.1 percent. Only 0.1 percent of that decline occurred in
the most recent quarter.
Identity fraud showed the greatest decrease at
22.7 percent and was down 6.3 percent quarter-over quarter. Identity fraud is when an applicant alters,
creates, or uses a stolen identity to obtain a mortgage.
CoreLogic points out that multi-closing fraud risk is also a
concern. This is a scheme that takes
advantage of the lag between closing a loan and recording the documents to
solicit multiple loans on a single property.
As property values have risen so have home equity line of credit closing
CoreLogic pointed to several microeconomic factors that
affected the mortgage market and the fraud rate over the 12 months ending in
June. Interest rates fell from 2013
through April 2015, increasing the number of well qualified borrowers in the
refinance market and increasing home values have enabled many homeowners with
previously marginal equity to purchase a different property, refinance, or take
out a home equity line.
Among the various loan segments jumbo loans with loan-to-value
(LTV) ratios of 80 percent or less have the highest fraud risk both for
purchase mortgages and for refinancing, followed by higher LTV conforming
loans. The lowest risk is for conforming
loans with rations of 80 percent or less.
There are clearly geographic fraud “hot spots” as can be
seen from the map below. While overall fraud trends are stable to decreasing
for most of the country, CoreLogic makes special note of the Miami area. It is already the highest risk core-based
statistical area in CoreLogic’s index and in addition its house prices seem to
be overheated and are accelerating at a far greater pace than rents for
single-family homes. This suggests the
prices may not be a good indicator of sustainable values. The combination of risk factors makes Miami
an area warranting scrutiny.