The risk of fraud in mortgage applications increased 16.9% in the second quarter compared with the second quarter of 2016, according to CoreLogic’s Mortgage Fraud Report.
The increase is expected because applications for purchases now make up a greater share of total applications, due to the fact that refinances have been falling due to higher mortgage rates. Applications for purchases generally carry higher fraud risk because borrower information is typically being verified for the first time by the lender.
An estimated 13,404 mortgage applications, or 0.82% of all mortgage applications, contained indications of fraud, as compared with the reported 12,718, or 0.70% in the second quarter of 2016.
During the second quarter, jumbo refinance loans showed the greatest fraud risk.
In terms of the types of fraud risk, occupancy, transaction and income fraud risk all increased year-over-year. The greatest increase was in occupancy fraud risk, which jumped 7.0% in the second quarter compared with a year earlier.
Other types of fraud risk measured in the report are identity, property and undisclosed real estate debt fraud.
Regionally, New York had the highest level of application fraud risk. Florida, which held the top spot for the last several years, dropped to number three, due to a 3% decrease in application fraud risk from 2016.
States with the greatest year-over-year growth in risk included Iowa, Indiana, Missouri, Louisiana and Idaho. Although they have the highest growth in risk, except for Louisiana, the other four states are still outside the top 25 in terms of overall risk.
“This past year we saw a relatively large increase in the CoreLogic National Mortgage Application Fraud Index,” said Bridget Berg, principal, fraud solutions, for CoreLogic, in a release. “If the factors that influenced the increase continue, including a shift to purchase transactions and growing wholesale channel origination activity, it is likely that mortgage application fraud risk will continue to rise as well. Fraud on cash-out refinance transactions and home equity loans may become more of a factor in the coming years as home values and equity rise.”