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Multi-Unit Property Loans Pose Most Fraud Risk: Interthinx

FEB 27, 2014 11:16am ET
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Mortgages secured by multi-unit properties pose a higher fraud risk than all other property types, the antifraud technology vendor Interthinx says in its latest quarterly report.

The mortgage fraud risk index for multi-unit assets is 250 through the fourth quarter of 2014, which is more than double the figure for single-family residences, condominiums, or planned unit developments.

Occupancy fraud is the main driver creating possible fraud for multi-unit properties, said the Agoura Hills, Calif.-based risk mitigation solutions provider, which recently agreed to sell itself for $155 million to First American Financial. Multifamily housing units have an occupancy fraud risk of 484, while the propensity for occupancy fraud at all other properties is 140.

The employment/income fraud risk for multi-unit properties is also high compared to all other housing assets, with an index of 228 versus 77.

"These properties are most often used as investment vehicles and have a high propensity for occupancy and employment/income fraud," says David Kittle, senior vice president of industry strategy at Interthinx. "Knowing the market and where the risks lie go a long way in preventing fraudulent loans from reaching the postfunding stage."

California, Washington, Utah, Louisiana and Florida are the top five states that pose the greatest probability for fraud at multi-unit properties, Interthinx says.

Overall fraud risk nationwide in the fourth quarter was up 2% from a year earlier. However, it was down 7% from the third quarter.

The quarter-over-quarter decline was due to a 19% decrease in identity fraud risk as well as a 5% drop in occupancy fraud risk.

The employment/income category was the only index to show an increase from the previous quarter, up 1%.

With eight metropolitan statistical areas on the top ten list for overall fraud risk, California continues to be the riskiest state for mortgage fraud, followed by Oklahoma, Washington D.C., Colorado, Massachusetts, Maryland, New Jersey, Illinois, Florida and Nevada.

Conversely, Nebraska has the least potential for possible mortgage fraud, Interthinx says. Other notable states that have low fraud risk include North Dakota, Indiana, West Virginia, Mississippi, Louisiana, Ohio and Wisconsin.

"It is important for lenders to take the long view when it comes to fraud risk and not become complacent when it seems as though the risk is declining," said Jeff Moyer, president of Interthinx, in the report. "As always, there is a greater risk for fraud in a tightening purchase market, and all evidence seems to point to this scenario for 2014."

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