Mortgage Application Fraud Risk Low But on the Rise


The risk of fraudulent information in mortgage applications increased 1.6% in November compared with October, reaching a score of 62 on First American’s Loan Application Defect Index.

Year over year, fraud risk was down 8.8% compared with November 2019.

The risk of fraudulent information submitted in applications for purchases was up 9% compared with a year earlier, while the risk of fraud in applications for refinances was down 15%.

“The Loan Application Defect Index increased in November relative to one month [earlier], but remains nearly nine percent lower than one year ago,” says Odeta Kushi, deputy chief economist for First American, in a statement. “Purchase loan fraud risk increased for the third month in a row and is now nine percent higher than one year ago. Refinance fraud risk resumed its upward trend after a one-month pause, but remains 15 percent lower than one year ago.”

Helping to spur the increase in fraud risk was historically low mortgage rates, which propelled home sales through the fall. The average rate for a 30-year fixed rate mortgage in November was 2.8%.

As Kushi points out, that’s “nearly a full percentage point lower than one year ago.”

“Historically low mortgage rates bring potential buyers off the sidelines and boost purchase demand in a market with record low inventory,” she says. “The result? A super-sellers’ market.

“As competition heats up, so does fraud,” she adds. “Income fraud risk has been increasing alongside purchase fraud risk for the last three months, indicating buyers are feeling the pressure to misrepresent information on their loan application to win the bid.”

So what will the next few months bring?

“The housing market usually hibernates in the colder months, potentially working to cool down the hot sellers’ market,” Kushi says. “Yet, seasonal patterns have been disrupted during this unprecedented year, making the outlook a little hazy.”

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