Fraud Risk Lingering High

Mortgage fraud, recognized as an impediment to lender-servicer efforts to maximize portfolio recovery, is on the rise and expected to get worse, especially in property valuations.

Among others, the 1Q10 Interthinx National Fraud Risk Index, based on the four most common type mortgage fraud risk indices, shows the overall fraud risk reached its highest level in six years. Data confirm what the nation's lenders and servicers have been saying all along. Constance Wilson, EVP, Interthinx, Agoura Hills, Calif., told this publication that fraud risk mitigation "is a top priority" and must remain so.

"Fraud continues to plague the collateral valuation function, and the fact that more than 12 million unregulated BPOs were produced in 2009, and are increasingly used by lenders and servicers simply due to a lack of effective appraisal solutions," says Mark Linne, EVP of AppraisalWorld, San Jose, Calif. "Our industry is in desperate need of reliable and economical ways to address the pervasive issue of mortgage fraud."

The Interthinx risk index increased by 4% from 4Q09 and 11% from 1Q09 to 151 (n = 100) exceeding 150 for the first time since 2004. Arizona, Nevada, California, Florida and Michigan remain the top five states with the highest fraud risk. According to the Mortgage Fraud Risk Report after a brief improvement in 4Q09 property valuation fraud risk resumed the upward trend that began in the fourth quarter of 2007, and it remains the primary driver of fraud risk. Many in the industry now focus on appraisal reviews that comply with the Home Valuation Code of Conduct established in 2009 to provide standards for Fannie Mae or Freddie Mac loans. Lenders must use existing technologies and analytics to mitigate this type of risk, says Wilson, as "the best way to avoid business-crippling risks," and the reason why large and small shops "must take this type of fraud into consideration" as they develop their business strategies and anticipate market trends.

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