Interthinx: Mortgage Fraud Risk On The Rise

Mortgage fraud risk is on the rise again, as the ‘bad guys’ seek to capitalize on opportunities presented by an improving housing market.

According to Interthinx's quarterly mortgage fraud risk report, the risk of mortgage fraud increased 4% nationwide in the second quarter compared to the second quarter of 2012.

Occupancy fraud risk increased 10%, compared to the first quarter, and is up 14% compared to the second quarter of 2012.

In addition, identity fraud risk increased 7%, compared to the first quarter. The riskiest market for identity fraud was Fayetteville-Springdale-Rogers Ark.-Mo., up 19% compared to the second quarter, according to the report.

What's more, employment/income fraud increased 2%, quarter over quarter.

Meanwhile, property valuation fraud risk decreased 4% compared to the first quarter.

As noted by Ashley Woodworth, vice president of business development and corporate strategy for Interthinx, mortgage fraud ‘is much easier to commit in a rising market.’ As such, the industry is seeing increased risk for certain types of mortgage fraud.

‘Mortgage fraud is a hallmark indicator of other trends,’ Woodworth says. ‘For example, traditional fraud hotspots in California, Nevada and Florida were hardest hit by high rates of default, foreclosure and underwater borrowers because of widespread fraud in loan originations during last decade's boom. Furthermore, the dynamic rebound of markets where housing prices are rising shows a corresponding increase in fraud risk.’

Jeff Moyer, president of Interthinx, points out that tracking mortgage fraud is of utmost importance to the industry, as it enables ‘mortgage lenders, servicers and investors to develop risk management strategies that work hand in glove with their other quality control initiatives.’

The report notes that as home prices and interest rates rise, demand for adjustable-rate mortgages, which still have rates below 3%, will only increase. This is a significant trend when tracking fraud, as there is more fraud within adjustable-rate mortgages than in fixed-rate mortgages.

Nevada displaced California as the riskiest state for fraud in the second quarter, after it witnessed a 7% increase in fraud risk compared to the first quarter. California is now the second riskiest state, with an increase of 4% compared to the previous quarter. The District of Columbia and Florida were in third and fourth places, respectively, in the second quarter.

The report notes that although California is now the second riskiest state overall, it includes four of the top 10 – and 10 of the top 25 – riskiest ZIP codes, six of the overall riskiest metropolitan statistical areas (MSAs), five of the riskiest MSAs for identity fraud risk, and all 10 of the top 10 MSAs for employment/income fraud risk.

Florida has six of the top ten riskiest MSAs for occupancy fraud risk, including first-place Cape Coral-Fort Myers, up 29%, compared to the first quarter.


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