Property valuation fraud risk jumped 27% in the first quarter compared to the previous quarter and was up 17% compared to the first quarter of 2013, according to Interthinx' quarterly Mortgage Fraud Risk Report.
Indicators suggest the increase in property valuation fraud risk was driven by people or institutions purchasing and listing multiple properties in the same neighborhood. By controlling those markets, these persons had the ability to artificially control the price of a property to their advantage.
Another contributing factor observed is the rise of properties being appraised well above traditional valuation thresholds, Interthinx says in its report, which was issued earlier this month. It should be noted that the report measures fraud risk, as opposed to actual incidents of fraud.
Overall, mortgage fraud risk declined about 1% compared to the previous quarter. However, the degree of fraud risk can vary considerably from market to market. For example, California continued to be the riskiest state for mortgage fraud in Q1, with an index score of 146. California contains eight of the 10 riskiest metropolitan statistical areas (MSAs) and eight of the 10 riskiest ZIP codes for mortgage fraud, according t the report.
California also continues to dominate the type-specific lists with four of the 10 riskiest MSAs for property valuation fraud, seven of the 10 riskiest MSAs for identity fraud, six of the 10 riskiest MSAs for occupancy fraud and eight of the 10 riskiest MSAs for employment/income fraud.
Rounding out the list of the top 10 riskiest states for mortgage fraud in Q1 were Washington D.C.; Florida; Maryland; Arizona; Connecticut; New Jersey; Massachusetts; Arkansas; and Colorado.
For the first time since the inception of the report in 2009, Nevada was not in the top 10.
Jeff Moyer, president of Interthinx, says the findings of the Q1 fraud risk report are ‘a reminder that lenders need to be aware of emerging fraud risks.’
‘The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions,’ he says. ‘To make lending decisions with increased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing.’
To read the full report, click here.