Mortgage fraud rose more than 10 percent nationally from the second quarter of 2017 to the second quarter of 2018, according to the latest fraud report from CoreLogic. CoreLogic’s report measures mortgage fraud across six fraud type indicators: property, income, occupancy, identity, transaction and undisclosed real estate debt.
“Because home prices are rising and demand for homes is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage,” says Bridget Berg, Principal, Fraud Solutions Strategy at CoreLogic.
Risk of income fraud showed the greatest increase, rising more than 20 percent over the past year. Occupancy fraud, when applicants deliberately misrepresent the intended use of a property, and transaction fraud, such as falsified down payments, grew less than five percent. Property fraud, when information about a property or its value is intentionally misrepresented, saw a minimal decrease. Surprisingly, undisclosed real estate debt actually showed a sharp decline in risk falling more than 10 percent compared to 2017.
New York, New Jersey and Florida maintained their position as the top 3 states for mortgage application fraud risk. New Mexico, Mississippi, Texas, Illinois and Oklahoma had the greatest year-over-year risk growth. Surprisingly, New Mexico, Illinois and Oklahoma now have risk levels greater than the National Index, which grew from 133 to 149 this past year. CoreLogic attributes the 12 percent national risk increase to a smaller share of low-risk applications, like rate reduction refinances.
The five metro areas with the highest year-over-year risk growth in descending order were Oklahoma City, El Paso, Springfield, Albuquerque and Spokane-Spokane Valley. Metro areas with the largest declines in application fraud risk were Rochester, Madison, Syracuse, Buffalo-Cheektowaga-Niagara Falls and Omaha-Council Bluffs.
Misrepresented employment tenure is a type of mortgage fraud trend that’s been on the rise since 2011. That means employees applying for a mortgage typically falsify a job description with a significant pay increase, or create a fake high-paying first job out of college (some setups are intricate enough to provide pay stubs and phone verifications).
Falsifying employment tenure removes the option for the lender to validate income with the IRS. While applications where the primary borrower has less than one year in their current position only account for two percent of all applications, it’s a trend that’s seen significant growth over the past decade.
Mortgage fraud is a serious issue that the real estate industry continues to wrestle with. Being mindful of mortgage fraud trends can help lenders spot red flags on mortgage applications. For buyers and sellers, knowing about mortgage fraud can keep them from listing what they believe is a harmless misrepresentation or omission.