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Fraud Hot Spots Reemerging

Mortgage Application Fraud Risk Increasing in Florida, New Jersey and New York

Bret Fortenberry    |    Mortgage Performance

Mortgage application fraud risk in the U.S. has been steadily increasing at the national level since CoreLogic started tracking this data in 2010, and according to new analysis, fraud risk is becoming more prevalent in larger metropolitan areas, particularly in the Northeast and Southeast.

The analysis, based on the CoreLogic Mortgage Application Fraud Risk Index*, shows that since 2012, Florida’s mortgage fraud risk has increased by 26 percent, followed by New Jersey and New York at 23 percent and 22 percent, respectively. The map progression in Figure 1 shows that Nevada, Illinois and California continue to have a high potential of fraud risk, and the majority of remaining states are experiencing slight decreases in mortgage application fraud risk. Arizona (down 35 percent) and Georgia (down 26 percent) have seen the most noticeable decreases. The maps show that although a majority of states are decreasing in fraud risk, increases in the hot spot states outweigh the decreases in other states, resulting in an overall increase of fraud risk at the national level.

Relationship between mortgage rates, refinance volume and fraud risk

Relationship between mortgage rates, refinance volume and fraud risk

The discrepancy between national and local trends can be explained by an increase of mortgage application fraud risk in larger metropolitan areas. In New York and New Jersey, for instance, fraud risk was non-existent in 2012. But from 2012 to 2015, the fraud risk started to concentrate around New York City and Atlantic City, rather than the bordering counties of New York City. Meanwhile, in the southeast, Orlando and Miami are historical hot spots for fraud. Over the last three years, these four cities have all experienced increased fraud risk.

Relationship between purchase volume and purchase fraud risk

Relationship between purchase volume and purchase fraud risk

The analysis also finds that mortgage application fraud risk increases with purchase loans and decreases with refinance loans, and is directly linked to the quality of borrowers associated with each. Since refinance loans have a higher percentage of high quality borrowers than purchase loans, an increase in refinances—and associated higher quality borrowers—will result in downward risk trends. Likewise, a decrease in purchase loans results in an upward tick in fraud risk (Figure 2). This, in turn, correlates with mortgage rates—as mortgage rates drop, the number of refinance loans increases, resulting in a decreased level of fraud risk. Figure 3 shows the relationship between mortgage rates, refinance volume and resulting mortgage application fraud risk.

Regional fraud risk trends, northeast and southeast

Regional fraud risk trends, northeast and southeast

As the data shows, mortgage application fraud risk is a consistent problem facing the industry and risk trends will continue to be tied to mortgage rates. As mortgage rates rise above 4 percent from all-time historic lows, more borrowers will likely pursue purchase loans, which, in turn, will increase fraud risk at the national, state and local levels.

*Analysis is based on the collective level of loan-application fraud risk the mortgage industry is experiencing as measured quarterly by the CoreLogic Mortgage Application Fraud Risk Index, which is based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager™.

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