The risk of occupancy fraud – when borrowers claim they will occupy a home when, in fact, they plan to use it for investment purposes, in order to obtain a lower mortgage rate – is on the rise.
According to the quarterly Mortgage Fraud Risk Report from Interthinx, occupancy fraud risk nationwide increased 15% in the first quarter of 2013, compared to the first quarter of 2012. This, in turn, contributed to a 1% increase in the overall mortgage fraud rate for the U.S.
One reason for the increased occupancy fraud risk is that, with interest rates rising, fewer people are refinancing and more are buying homes. That leads to increased opportunity for borrowers to mislead banks during the approval process as to how they plan to use the new property they are purchasing.
The report finds that new purchases have a higher fraud risk than refinances, due to the higher occupancy fraud risk. The occupancy fraud risk index for purchases is 176, while the rate for refinances is 76.
Other types of mortgage fraud risk measured in the report include property valuation fraud, identity fraud and employment/income fraud.
Including all types of mortgage fraud, California was the riskiest state in the first quarter, with a mortgage fraud risk index of 125. California contains four of the top 10 riskiest ZIP codes and five of the top 10 riskiest metropolitan statistical areas (MSAs), including the riskiest, Santa Barbara-Santa Maria-Goleta, according to the report.
What's more, nine of the top 10 riskiest MSAs for employment/income fraud risk are located in California.
Ashley Woodworth, Interthinx vice president of business development and corporate strategy, noted that there has been a trend of mortgage fraud ‘heading east,’ with states like Illinois and Ohio showing increases in property valuation fraud risk.
‘Clearly, this report illustrates that loan purpose is a pivotal factor in occupancy fraud risk,’ said Jeff Moyer, president of Interthinx, in a release. ‘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.’
The quarterly Mortgage Fraud Risk Report is developed by a team of fraud experts and draws on data derived from more than 12 million loan applications and the industry's use of the Interthinx FraudGUARD loan-level fraud detection tool.
The report has been updated to include interactive features – for example it is now possible to explore different views of the data simply by clicking on various elements.