Mortgage Fraud Hits Two-Year Low, Report Shows

November 29, 2012

Interthinx reported that its Mortgage Fraud Risk Index dropped nearly 8 percent in the third quarter of 2012 and is at its lowest level in two years.

However, significantly increased levels of fraud risk in Florida pushed it past Nevada and into the top spot for overall fraud risk. Florida also appears on three of the four type-specific top 10 riskiest lists this quarter. Of particular concern is the finding that in Florida, investment purchases have more than three times the level of employment/income fraud risk than purchases for primary residences.

Interthinx indices are based on the frequency with which indicators of fraudulent activity are detected in mortgage applications processed by the company's proprietary fraud detection software. The indices include a composite Mortgage Fraud Risk Index which measures the overall risk of mortgage fraud and four component indices:

  • Property Valuation Fraud perpetrated by manipulating property value to create equity which is then extracted from loan proceeds by various means.
  • Identity fraud is frequently used in mortgage fraud schemes in order to hide the identity of the perpetrators and/or to obtain a credit profile that meets lender guidelines.
  • Occupancy fraud is perpetrated by investors who falsely claim the intent to occupy a purchased property in order to obtain a mortgage with a lower down payment and/or lower interest rate.
  • Employment/Income occurs when an applicant's income is misrepresented in order to meet lender underwriting guidelines for a loan.
All of the type-specific indices have decreased by at least four percent over the past year. Although in the last two years the overall and Occupancy Fraud Risk indices are essentially flat, the Property Valuation and Identity Fraud Risk indices have decreased dramatically, by 23 and 24 percent, respectively, and the Employment/Income Fraud Risk Index is up by 15 percent.

“The report shows that even when overall fraud risk is decreasing nationwide, there are still areas of concern, as we see with this quarter’s findings in Florida,” said Mike Zwerner, senior vice president of Interthinx. “The report’s actionable intelligence helps lenders pinpoint where additional due diligence may be needed, improves loan quality, reduces repurchase risk and ultimately helps the economy recover.”

Notable findings in the most recent report include:
  • Florida and Nevada are the two riskiest states with Interthinx Mortgage Fraud Risk Index values of 206 and 205, respectively. Currently, Florida has 17 metropolitan statistical areas (MSAs) classified as “very high risk.”
  • Arizona is the third riskiest state for mortgage fraud, with a risk index value of 191.
  • California, which is the fifth riskiest state in the country, has six of the top 10 riskiest metros, including Merced — the riskiest metro in the nation. California also has one of the 10 riskiest MSAs for identity fraud, three of the 10 riskiest MSAs for occupancy fraud, five of the 10 riskiest MSAs for property valuation fraud, and eight of the 10 riskiest MSAs for employment/income fraud.
  • Iowa City, Iowa, leads the nation in identity fraud risk with an identity fraud risk index of 325, a 118.4 percent increase from the second quarter of 2012.
  • Miami-Fort Lauderdale-Pompano Beach, Fla., appears on all of the type-specific top 10 riskiest lists except employment/income.

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