The risk of fraud in mortgage applications in August was flat compared with July but up 20% compared with August 2016, according to First American Financial Corporation’s Loan Application Defect Index.
Although application fraud risk held flat for two months, as of the end of August, Mark Fleming, chief economist for First American, warns that it could soon start to increase due to the impact of hurricanes Harvey and Irma.
“The devastating impact of Hurricanes Harvey and Irma on large parts of Texas and most of Florida continues to be assessed,” Fleming says in the report. “Thankfully, recovery efforts are well underway and the rebuilding of homes has started.
“Yet, it should come as no surprise that in the wake of major natural disasters the risk of mortgage loan application fraud increases,” he says. “Hurricanes, and particularly the flooding associated with these natural disasters, create the potential and opportunity for significant misrepresentation of collateral condition. Evidence from monitoring application defect, misrepresentation and fraud risk after [Hurricane] Sandy in the New York metropolitan area indicates that one should be on the lookout for increased risk in the markets impacted Harvey and Irma.”
In addition, the recent high-profile data breaches that exposed the personal credit information of many U.S. consumers has increased the risk of identity-based fraud and misrepresentation, Fleming says.
The report shows that although the overall risk of fraud in mortgage applications was flat month-over-month in August, it was up 20% compared with August 2016.
Still, it was down 17.6% from the high point of risk in October 2013.
