Mortgage

The chance of mortgage fraud will increase with the rise within the proportion of buy credit

The risk of transaction fraud, which is specific to the purchase of mortgage applications, increased 34.2% year over year in the second quarter, driven by the increase in activity on these loans, CoreLogic said.

The company's annual report delves deeper into the trends in the prevalent types of fraud and how they are occurring, in contrast to data released in August which showed an overall increase in fraud risk of over 37% in the second quarter compared to a year earlier.

"Refinancing opportunities that drove credit volumes soaring during the pandemic may decline," said Ann Regan, executive, product management at CoreLogic, in a press release. "The outlook is less risky [rate and term] refinancing compared to purchases and cash-out refinancing, which leads to a higher risk of fraud."

While it was estimated that one in 120 applications had fraud indicators in the second quarter, this pace rose to one in 90 for purchases. For Refis, it was one of 169 apps.

In the 2020 report, the overall quota was one in 164 requests, with one in 126 for purchases and one in 200 for refis.

Transactional fraud is defined as a misrepresentation of the nature of the transaction, including undisclosed agreements between buyers and sellers, falsified deposits, third party risks, off-market transactions, and the use of straw buyers.

Identity fraud risk, which CoreLogic only studies for purchase transactions, had the second-largest increase among the six types assessed at 7.4%.

The risk of rental fraud increased by 5.6%, with refinancing requests increasing more strongly.

This was followed by silent real estate debts with an increase of 4.6%. However, all of the growth comes from Refis, which is up 8.7% year-on-year; in the case of purchases, this fell by 0.8% in the same period.

While the risk of income fraud decreased by 2% year-over-year, CoreLogic attributed this to a large amount of streamlined refis where lenders do not need to review the borrower's earnings.

But when CoreLogic only rated purchases, the income risk increased 1.5%.

The sixth category, the risk of real estate fraud, was detected in apps by 5.4% less than in the previous year.

Meanwhile, the Federal Housing Finance Agency's removal of caps on investor and second home purchases by Fannie Mae and Freddie Mac should improve the fraud risk profile for those loans. Higher prices for these loans increased the motivation of borrowers to commit occupancy fraud.

"Changes in the availability of investment and second home finance could have contributed to higher occupancy risk in 2021 as borrowers tried to avoid more restrictive policies and lower prices for non-primary residences," Bridget Berg, director of Fraud Solutions said in the report.

The risk of fraud for two to four residential units runs much faster than the overall rate, with one in 50 applications.

"The ability to qualify with future income from the property being financed, along with higher loan amounts, makes these targets attractive targets for attempted fraud," the report said.

By state, Nevada now has the highest mortgage application fraud risk index, up nearly 45% year over year. New York moved into second place as the index grew 14%. Hawaii's 38% surge ranked it third above Florida, despite the Sunshine State having its own 31% surge.

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