The overall risk of mortgage fraud is highest in areas with high levels of foreclosure activity, according to the newest fraud index report from Interthinx.
The correlation is consistent with the increase in fraud schemes that seek to take advantage of opportunities presented in distressed markets, such as ‘flopping’ (i.e., deflating short sale values to generate a profit margin on a subsequent flip at an increased value) and foreclosure rescue-related schemes, the company explains.
As of the end of 2009, fraud risk levels in Nevada and California were nearly identical, with California’s overall risk index value at 222 and Nevada’s value at 220. However, during 2010, their risks diverged, with Nevada’s overall risk index value increasing to 255, while California’s decreased to 180. Interthinx says this divergance may be due to a migration of fraudsters seeking to take advantage of the more fertile grounds for fraud in Nevada, where the proportion of foreclosure and distressed sales is far and away the highest in the nation.
“As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” says Kevin Coop, president of Interthinx. “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them.’
The Employment/Income and Identity Fraud Risk indices both rose by nearly 30% over the last year, which may indicate that the incidence of so-called “fraud for property” is on the rise, Interthinx adds.
The company also finds that overall fraud risk in the Chicago metropolitan statistical area increased dramatically in 2010, rising from 134 in the fourth quarter of 2009 to 185 in the fourth quarter of 2010.