Mortgage fraud risk hit 2-year high in 2Q

In the second quarter, shifting lending volumes and borrower misinformation drove fraud risk to the highest level since the start of 2019, according to CoreLogic.

The probability of application fraud jumped 10.5% quarterly and 37.2% annually. The index score rose to 132 from a revised 120 in the first quarter and 96 the year before — the lowest point since the index’s inception with a baseline of 100 in 2010’s third quarter.

The year-ago low reflected the surge of rate-and-term refinances caused by a precipitous drop in interest rates. Fraud likelihood returned to pre-pandemic levels in 2021 as originations swung 15 percentage points toward purchases from refinances, inherently posing higher risk, said Bridget Berg, principal of industry solutions and property intelligence at CoreLogic.

California, Florida, Hawaii, Nevada and New York were the top five states with the most fraud risk. Broken down by the 100 largest metropolitan statistical areas by population, Las Vegas had the highest index score at 251, shooting up from 216 in the first quarter. Miami followed, growing to 235 from 207 then came Poughkeepsie, N.Y., at 206, up from 201. Scores of 191 in Tampa, Fla., and 189 in San Jose, Calif., rounded out the top five.

With intense buyer competition and restrictions from Fannie Mae and Freddie Mac on their purchases of investor or secondary homes, Berg expects the index will continue to rise in the near future.

“Given the strong economy, rising home prices and low level of foreclosures, the greatest mortgage origination fraud risks are from misrepresentations of borrower qualifications, such as credit history and income,” Berg told National Mortgage News. “Because the GSEs have recently begun limits on second homes and investment properties, occupancy misrepresentation is also likely to rise.”