Mortgage fraud increased by more than 20 percent since the fraud rates reached their lowest point in early 2009, according to an update of CoreLogic’s Fraud Trends Report.
The increase in reported fraud by lenders is attributed to fraudsters migrating toward higher risk, high volume loan programs, including those offered by the Fair Housing Administration (FHA), Home Affordable Refinance Program (HARP), as well as short sales and real estate owned (REO) sales.
“Despite increased fraud activity during 2010, the industry has made substantial progress in curbing fraud from the levels it reached during the height of the market in 2007. Fraud continues to shift to areas of the lending business where large volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place,” said Tim Grace, senior vice president of Fraud Solutions at CoreLogic.
“In fact, during the seven quarters CoreLogic analyzed for this update, fraud risk associated with refinancing grew approximately 30 percent. We also found that REO sales pose a greater risk than short sales, with one in every 24 REO sale transactions associated with a fraudulent resale. The only way lenders can preempt these evolving fraud schemes and mitigate the associated risks is through collective, consortium-based tools and information.”
CoreLogic analyzed and issue a fraud score for each of the seven million loans issued from the first quarter of 2005 through the second quarter of 2010. The peak of mortgage fraud activity was in 2006, at a fraud rate of 109. The data showed fraud reached its lowest point in early 2009 at a fraud rate of 68, but as of the second quarter of 2010, it has increased 20 percent to a fraud rate of 82. Although it is growing again, it is still well beneath the peak.
The report also found that:
- Increased lending through FHA and HARP loan programs accounted for most of the increased risk in 2009 and 2010.
- Second quarter of 2010 had the highest volume of single family resident short sales with nearly 60,000 short-sale transactions.
- REO transaction volume is more than twice that of short sales with 120,000 REO sales in the second quarter of 2010.
- Investment companies are involved in a disproportionately higher percentage of suspicious resales. Figure 8 in the report provides more detail.
- Flipping and flopping hot spots in the US areSouthern California,Phoenix,DetroitandAtlanta.
- Lenders have reported that occupancy fraud, employment fraud and undisclosed debt are on the rise. Figure 10 in the report provides more detail.
- CoreLogic is able to produce fraud metrics at the national, state, MSA, SCF and neighborhood levels. The riskiest neighborhood in the US is Douglas in theDistrict of Columbia, ZIP 20020. Other top ranking neighborhoods include Reynoldstown, NC (27101); East Garfield Park, IL (60612);Bedford-Stuyvesant, NY(11205); Castle Hill, NY (10473); Bedford Pine, GA (30308); Brunetti South, FL (32822); Benteen, GA(30312); Baychester; NY (10469); Acorn, CA (94607); Bay Ridge & FortHamilton, NY(11209) andJamaica, NY(11412).