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FHA Fraud Risk on the Rise

CoreLogic Mortgage Fraud Index Identifies Hot Spots for Fraud Activity

Liang Tian    |    Mortgage Performance

CoreLogic recently published its inaugural Mortgage Fraud Brief highlighting the latest mortgage fraud risk level dynamics across the industry. The CoreLogic Mortgage Application Fraud Risk Index tracks changes in fraud risk among multiple loan segments, and the national trend is a weighted aggregation from those segments.

Although the national trend has been upward overall in recent quarters [Figure 1: blue line], the index values varied by loan segments. Based on Q1 2016 results, CoreLogic research shows that since 2010, the fraud risk for home-purchase loan applications with loan-to-value (LTV) ratios of 95 or greater (predominantly FHA-insured mortgages) [Figure 1: red line] exhibits a consistent growth trend while the fraud risk level of several other larger segments remained flat or even decreased, including the conforming residence purchase segment.

Heat Map

Heat map

Local market conditions have been one of the primary integral influencers on real estate characteristics. As a result, more pronounced risk level changes are often observed at the state and Core Based Statistical Area (CBSA) levels [Figure 2]. At the state level, Florida still ranked the highest for mortgage application fraud risk as of Q1 2016, followed by New York, New Jersey, Hawaii and Washington D.C. At a more granular level, of the 100 most populated CBSAs, the five metros that had the highest mortgage fraud risk as of Q1 2016 were:

  • Miami-Fort Lauderdale-West Palm Beach, FL.
  • Tampa-St. Petersburg-Clearwater, FL.
  • Deltona-Daytona Beach-Ormond Beach, FL.
  • New York-Newark-Jersey City, N.Y.-N.J.-PA.
  • Lakeland-Winter Haven, FL.

Two new metro areas entered the highest fraud risk ranking for in Q1 2016. New Haven, CT has been identified by CoreLogic as an emerging risk area for the past two quarters due to significant price increases in new construction sales in the area, which typically correlate to a higher level of mortgage fraud risk. The significant risk level increase in Fresno, CA could be influenced by multiple factors: Investor purchases have jumped up year over year, and population growth has outpaced the national average. All of these factors have shown stronger correlations with higher levels of mortgage fraud risk, according to CoreLogic research findings.

One of the key characteristics of mortgage fraud is its ever-shifting migration pattern. It morphs from one scheme to another depending on local economic and real estate market conditions. It is critical for the real estate industry to monitor the dynamics of fraud risk in these “hot spots.” A metric that analyzes multiple dimensions of risk factors, such as the CoreLogic Mortgage Application Fraud Risk Index, can help derive market-relevant intelligence.

Contributions from Bret Fortenberry.

This blog is based on analysis 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™.

Heat map displaying mortgage fraud risk across the nation for the top 100 CBSAs by population. Dark red indicates higher-than-average fraud risk and lighter colors indicate lower-than-average fraud risk.

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