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Location, Location, Location - Florida Mortgage Fraud Risk Heats Up

CoreLogic 2014 Mortgage Fraud Report

Liang Tian    |    Mortgage Performance

It seems as though the old adage that real estate price is all about “location, location, location” applies to mortgage fraud as well. The CoreLogic 2014 Mortgage Fraud Report (newly released at this month’s Mortgage Fraud and Valuation Consortium Meetings) shows a 3.2 percent year-over-year increase in fraud risk nationally through the second quarter of 2014, for example, but we can observe more pronounced risk-level changes across specific local markets.

Across the country, Florida experienced the highest year-over-year growth in mortgage application fraud risk at 72.6 percent. Beyond that, the other top four riskiest states with the highest year-over-year growth in risk were: New Jersey (62.4 percent), New York (58.2 percent), Mississippi (34.5 percent) and Connecticut (33.8 percent). During the second quarter of 2014, mortgage application fraud risk reached its highest level since 2010 in Mississippi, Florida, New Jersey, Rhode Island, Connecticut and New York. These observations are consistent with the FBI Mortgage Fraud Report on riskiest locations and growth areas.

U.S. Mortgage Fraud Risk Heat Map

In the highest fraud-risk states, Florida and Nevada, many foreclosed and vacant properties with substantial deferred maintenance needs lie close to other properties in areas that have experienced rapid appreciation. This can lead to large value discrepancies between nearby properties, which increases the opportunity for incorrect valuation, fraud-for-profit schemes and occupancy fraud on properties recently converted to rentals. Both states have experienced significant risk level increases since the second quarter of 2013.

Fraud Indices in Riskiest States

Fraud Indices in Riskiest States

At a more granular level, of the largest 25 Core Based Statistical Areas (CBSAs) based on population, four of the top five riskiest areas were in Florida. Miami-Fort Lauderdale-West Palm Beach, Fla. had the highest mortgage fraud risk as of the second quarter of 2014, followed by Orlando-Kissimmee-Sanford, Fla., Tampa-St. Petersburg-Clearwater, Fla., North Port-Sarasota-Bradenton, Fla. and Las Vegas-Henderson-Paradise, Nev.

At the national level, the Mortgage Application Fraud Index has remained relatively stable since CoreLogic started tracking mortgage fraud trend in 2010; however, more pronounced risk level changes are often observed at the state and CBSA levels. It is important for mortgage originators and servicers to know where the mortgage fraud risk “hot spots” are at any given time and leverage this information in their decisioning rules. It’s safe to say that mortgage fraud won’t be disappearing anytime soon; it simply continues to morph from one popular scheme to another; from one geographic area to the next. Local real estate market conditions, local economic indicators and government programs are some of the key incubators of local risk-level metamorphosis. In the end, it’s all about location.

The report analyzes 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™.

© 2014 CoreLogic, Inc. All rights reserved.