Income application fraud risk increased 7.5% in the second quarter, compared to the first quarter, and was up 13.3% compared to the second quarter of 2012, as prospective borrowers continued to misrepresent their income when applying for mortgages, according to CoreLogic's Mortgage Fraud Report.
Meanwhile, property application fraud – where homeowners intentionally misrepresent the value of their properties when seeking refinancing – declined 7.1%, compared to the first quarter, and fell a whopping 20.8% compared to the second quarter of 2012, mainly a result of declining refinancing application volume resulting from increased interest rates, the report finds.
As a result of the two trends offsetting each other, overall mortgage fraud risk, including all types of fraud, decreased 0.73% in the second quarter, compared to the first quarter, and dropped 5.6% compared to the second quarter of 2012. Most of the decrease comes as a result of declining application volume for refinancing.
It should be noted that the increase in application fraud risk is not necessarily indicative of a higher percentage of people misstating their income on mortgage applications. Rather, it is more attributable to the overall increase in application volume that came as the housing market recovery continued in the second quarter.
‘Since the beginning of 2012, mortgage application fraud risk has totaled more than $30 billion nationally,’ says Dr. Mark Fleming, chief economist for CoreLogic, in the report. ‘While the propensity toward application fraud risk has declined based on our index, as the housing market recovers, the volume of mortgage applications is rising and increasing the total amount of fraudulent mortgage loan application dollars.’
The approximately 2.4 million mortgage applications submitted during the second quarter represent roughly $5.3 billion worth of mortgage fraud risk, according to the report. Total mortgage applications submitted during the first half of 2013 represent about $10.5 billion in risk – and the total submitted since the second quarter of 2012 represent $21.9 billion in risk, according to the report.
Of the 2.4 million mortgage applications submitted during the second quarter, about 19,700, or 0.8%, represent ‘high fraud risk,’ according to the report. That compares to 20,900 or about 0.7% in the second quarter of 2012.
The report measures six types of fraud risk: identity, income, occupancy, property, employment and undisclosed debt.
Of those, undisclosed debt application fraud risk increased 0.2% in the second quarter, compared to the first quarter, and was up 2.1% compared to a year ago. Occupancy fraud risk increased 2.6%, quarter-over-quarter, and was flat compared to the second quarter of 2012. Employment application risk increased 1.5% quarter-over-quarter but was also flat compared to a year ago. Identity application fraud risk decreased 3.2%, quarter-over-quarter, and was down 14.5% compared to a year ago.
‘As the housing market and economy have healed over the last 18 months, a transition away from property-related to identity-related application fraud has occurred,’ Fleming adds. ‘Rising prices and a healing housing market make property-related mortgage application fraud less likely, but a higher level of scrutiny on an applicant's ability to pay increases the propensity to attempt income-related fraud.’
The five states with the highest year-over-year increases in mortgage application fraud risk in the second quarter were Ohio (30.1%), Hawaii (19.6%), Kentucky (16.6%), Connecticut (15%) and Alaska (13.8%). Those that saw the largest decreases in mortgage fraud risk were Washington D.C. (-29%), Nevada (-23.1%), Idaho (-22.3%), Delaware (-22%) and Oregon (-18.5%).
States with the highest totals for fraudulent mortgage loan applications for the second quarter, in dollars, were California ($864 million), New York ($278 million), Florida ($273 million), Texas ($261 million) and Virginia ($231 million).
‘In dollar terms, fraud risk in mortgage applications is rising fastest in states like Ohio and Rhode Island,’ says Ed Gerding, senior fraud and risk strategist for CoreLogic. ‘Of the two, only Ohio had a large positive year-over-year increase in the application fraud risk index, so rising risk in dollar terms in Rhode Island is more attributable to the combination of increasing application volumes and appreciating house prices.’
To download a copy of the report, click here.