According to the annual Mortgage Fraud Risk Report from Interthinx, the Mortgage Fraud Risk Index for 2012 is 150 – a 3.4% increase from 2011's index of 145. The company says the increase reflects the overall rising trend in mortgage fraud risk observed over the past two years and is attributed to market stabilization, tightening housing inventory, and home price increases.
The report also found a marked shift in mortgage fraud risk from west to east, with seven of the top 10 states located in the eastern half of the U.S. Hit hard by mortgage fraud and foreclosures early in the boom years, many of these states are judicial foreclosure states where real estate sales activity was depressed before the ‘robo-signing’ foreclosure abuse lawsuit was settled. The rise in fraud risk is an indicator that these markets may have hit a true bottom, since rising markets are more attractive to fraudsters seeking profits, and fraud is easier to commit when property values are increasing than when they are decreasing.
Despite the decrease in fraud risk in the western U.S., Nevada and Arizona are ranked as the first and third riskiest, respectively. California dropped to sixth placeÂ – its first time finishing out of the top five since the inception of the yearly report in 2010 – even though it contains eight of the riskiest metropolitan statistical areas (MSAs) for employment/income fraud risk, six of the riskiest MSAs overall, and five of the 25 riskiest ZIP codes.
Employment/income fraud risk is up 7% nationally from 2011 and is particularly concentrated in northern California, while occupancy fraud risk declined 11% from one year ago, likely reflecting investors' ability to use cash for purchases. Despite the decline in occupancy fraud risk, investor loans remained significantly riskier than owner-occupied and second-home loans.
Purchase loan applications with loan-to-value ratios (LTVs) of exactly 20% are extremely risky, with a mortgage fraud risk index of 637. It is likely that these loans are associated with piggyback-type loans, where the borrower originates a loan with an LTV of 20% for simultaneous use as the down payment for a loan with a second lender for 80% of the property value.