Mortgage Fraud Is on the Rise Again

January 4 2011 (Jeff Alan)
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CoreLogic has released a third quarter update to its annual Mortgage Fraud Trends Report revealing that mortgage fraud continues to rise since its lowest levels in 2009. Most of the increased fraud risk is attributed to the Federal Housing Authority (FHA) and the Home Affordable Refinance Program (HARP) and while these programs have been aggressive in their efforts to steady the lending industry, the report noted that they are still lacking in the necessary fraud controls.

The report notes that during the last seven quarters, purchase related fraud risk has remained relatively stable; however, the fraud risk associated with refinances grew approximately 30 percent.

The report also reveals that suspected fraud occurs more frequently with REO sale transactions than short sale transactions by a margin of over 2 to 1.

“In fact, during the seven quarters CoreLogic analyzed for this update, fraud risk associated with refinancing grew approximately 30 percent. We also found that REO sales pose a greater risk than short sales, with one in every 24 REO sale transactions associated with a fraudulent resale,” said Tim Grace, senior vice president of fraud solutions at CoreLogic.

Grace added, “Despite increased fraud activity during 2010, the industry has made substantial progress in curbing fraud from the levels it reached during the height of the market in 2007. Fraud continues to shift to areas of the lending business where large-volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place.”

Using a baseline of 100 established in 2005, the peak of mortgage fraud activity was in 2006, at a fraud rate of 109. The data showed fraud reached its lowest point in early 2009 at a fraud rate of 68, but as of the second quarter of 2010, it has increased 20 percent to a fraud rate of 82.

Santa Clara-based Erate.com reports seniors comprise 33 percent of all fraud victims.

Other highlights of the report included:

– Increased lending through FHA and HARP loan programs accounted for most of the increased risk in 2009 and 2010.

– The second quarter of 2010 had the highest volume of single-family resident short sales with nearly 60,000 short-sale transactions.

– REO transaction volume is more than twice that of short sales with 120,000 sales in the second quarter of 2010.

– Investment companies are involved in a disproportionately higher percentage of suspicious resales.

– Flipping and flopping hot spots in the U.S. are Southern California, Phoenix, Detroit and Atlanta.

– Income fraud is dropping as lenders use more stringent verifications, but debt and employment fraud have replaced it as the fastest growing segments.

– The riskiest neighborhood in the United States is Douglas in the District of Columbia.

Tags: mortgage fraud, reo, short sales, mortgage transactions, FHA, HARP, suspicious resales, investment companies, flipping