The risk of mortgage fraud increased 3.2%, on a year-over-year basis, as of the end of the second quarter, according to CoreLogic's Mortgage Fraud Report.
The report measures the number of ‘defects’ contained within applications flowing through CoreLogic's LoanSafe Fraud Manager solution.
About 11,100 mortgage applications, or 0.69% of all applications, contained elements of fraud, as compared with 19,700 or 0.67% in the second quarter of 2013, when total application volume was substantially higher. These applications represent approximately $3.3 billion in mortgage debt, according to CoreLogic.
For the 12 months ended June, the report estimates the total value of applications with fraud or serious misrepresentations was about $19.8 billion.
CoreLogic's LoanSafe Fraud Manager breaks down application fraud into six distinct categories including employment, identity, income, occupancy, property and undisclosed debt. The report does not state how many lenders use the solution or how much application volume flows through it.
According to the report, Florida experienced the highest year-over-year growth in mortgage application fraud risk in the second quarter, while Arizona experienced the largest decline.
Property fraud risk had the largest year-over-year increase at 3.3%, while undisclosed debt risk showed the largest year-over-year decline at 22.7%.
As has been the case for the past four years, jumbo mortgages exhibited the highest fraud risk, followed by low-down-payment mortgages.
CoreLogic notes that there are several factors that have reshaped the mortgage fraud landscape during the past two years.
First is the introduction of new government regulations, including the Consumer Financial Protection Bureau's ‘ability to repay’ rules that went into effect last January, that have placed additional scrutiny on debt and irregular income, such as bonuses and rental payments.
Second is the strong growth in the single-family rental market, which has increased the potential for occupancy fraud as well as the number of consumers showing rental income and multiple mortgages.
The third factor relates to valuations: Deferred maintenance for some properties and rapid appreciation for others has led to large discrepancies in value among nearby properties, increasing opportunities for incorrect valuation and fraud-for-profit schemes. This was most often the case in judicial foreclosure states and high vacancy areas.
‘Increasing home values have improved home equity, enabling many homeowners with previously marginal equity to purchase a different property, refinance, or obtain a cash-out home equity loan or HELOC,’ says Michael Bradley, senior vice president of analytics at CoreLogic.
Bradley adds that job creation, as well as the aging of negative credit report records from the beginning of the recession, has increased the number of consumers able to qualify for mortgages.
‘Finally, more institutions are beginning to rely on advanced analytics to relax credit overlays and expand the credit envelope,’ he adds. ‘All of these trends have expanded access to mortgage credit modestly with only a slight increase in fraud risk, as the CoreLogic Mortgage Fraud Report indicates.’