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Mortgage-fraud risk is increasing


Good economic times tend to bring out the worst inclinations of mortgage borrowers. In good times, people are more inclined to lie about their income, fudge their employment history, or commit other acts of mortgage fraud to get an edge on other homebuyers in fiercely competitive housing markets, tracking data suggests.

In this current boom, that’s what has been happening, according to CoreLogic.

fraudriskMortgage-fraud risk increased in the April-June period for the seventh consecutive quarter, and the risk has been moving up since the bottom of the housing market in late 2010. Notably, the risk of income fraud — people lying about their salaries — was up sharply in the second quarter. This indicates that people are stretched to qualify for a loan.

Home-occupancy fraud risk also rose in the second quarter. Basically that involves people falsely claiming that a second home is a primary residence in order to get lower rates, cheaper hazard insurance and more tax benefits.

“Because home prices are rising and demand for homes is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage,” said Bridget Berg, principal of the Fraud Solutions Strategy at CoreLogic.

In May, Fannie Mae flagged a three-year running scam that involved fake employers in California being used to validate borrower incomes. Lenders have reported similar schemes in other states, according to CoreLogic. Often it involves an applicant reporting a significant pay increase, or a high-paying first job out of college.

“Some fake employer setups are well-organized and provide pay stubs, phone verifications and [verification of employment] returns,” CoreLogic’s report said. “Fake diplomas are also used. Some of these services are openly advertised on the internet and offer different service levels.”

Loan-application fraud is now happening in one out of every 109 mortgage applications, a rate of 0.92 percent, CoreLogic said. That is up from a one out of every 122 applications, or 0.82 percent, a year earlier.

Some of the rise in mortgage risk is related to the shift to a market dominated by home-purchase mortgages. Home-purchase loans afford a greater opportunity to commit fraud than rate-term refinancing. The share of wholesale loans also has increased, and these loans tend to carry more risk of fraud than do loans originated through retail and correspondent channels, CoreLogic said.

The top states for fraud risk were New York, New Jersey and Florida, but fraud risk increased the most this year in New Mexico, Missouri and Illinois, CoreLogic reported. The Miami metropolitan area was the nation’s top metro for fraud risk in the second quarter.


 

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