Mortgage Fraud Risk Rises for Eighth Straight Quarter

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The national mortgage application fraud risk index rose from 149 to 151 quarter over quarter in the third quarter of 2018, according to researchers at CoreLogic. In the third quarter of 2017, the index reading was 135. The fraud risk index has risen in each of the past eight quarters.

CoreLogic’s mortgage fraud risk index is calculated from the aggregation of individual loan application fraud risk scores during the prior quarter. Score compilations are calculated for the 100 most populated U.S. Census Bureau Core Based Statistical Areas (CBSAs) in the United States.

Purchase applications for new mortgages remained flat sequentially at 72%. Applications for new mortgages are riskier for lenders than applications for refinancing, but refinancing applications have dropped sharply, contributing to the increase in fraud risk from new applications. CoreLogic commented that rising interest rates have lowered loan volume overall.

CoreLogic also noted a continuing increase in identity discrepancies and income reasonability red flags. The identity red flags that have been ticking upward are indicative of synthetic IDs, where someone creates a new credit identity, rather than committing identity theft.

Fraud risk rose the most in the Cape Coral-Fort Myers, Florida, metropolitan area, where loan applications have been tied to neighborhoods with high delinquency rates. Florida includes four of the top five metro areas for mortgage fraud risk.

The 15 metro areas with the highest mortgage fraud risk and the quarter-over-quarter change are:

  1. Miami-Fort Lauderdale-West Palm Beach, Florida: 342, up 19%
  2. Lakeland-Winter Haven, Florida: 275; up 20%
  3. Cape Coral-Fort Myers, Florida: 257; up 49%
  4. Memphis, TN-MS-AR: 255, up 28%
  5. Tampa-St. Petersburg-Clearwater, Florida: 255, up 20%
  6. Deltona-Daytona Beach-Ormond, Florida: 251, up 25%
  7. New York-Newark-Jersey City, NY/NJ: 250, down 4%
  8. Orlando-Kissimmee-Sanford, Florida: 240, up 20%
  9. El Paso, Texas: 233; up 23%
  10. Los Angeles-Long Beach-Anaheim, CA: 221, up 1%
  11. New Orleans-Metairie, Louisiana: 207; up 14%
  12. Albuquerque, New Mexico: 205, down 17%
  13. Urban Honolulu, Hawaii: 204, down 2%
  14. Jacksonville, Florida: 200; up 18%
  15. Springfield, Massachusetts: 197, down 29%

Mortgage fraud can take many forms. The basic motive behind most of the borrower-initiated fraud is an attempt to qualify for a mortgage that would otherwise be unavailable. Inflating an appraisal in an attempt to get a mortgage for more than a property is worth or claiming income or assets that a borrower does not have are just two examples.

Borrowers themselves also may be the target of scams seeking to defraud them with loan modification programs or even Ponzi schemes. Promises to rescue a borrower from a foreclosure can leave a beleaguered homeowner in even worse financial shape.

Visit the CoreLogic website for more information and for the methodology the firm uses to derive its Mortgage Fraud Index.