74% of Reported Mortgage Fraud Occurred with Loan App: LexisNexis

Mortgage fraud remains a national problem as loan applications have seen misrepresentations increase on an annual basis for three consecutive years, according to data from LexisNexis Risk Solutions.

Nearly three-fourths of all mortgages reported to the LexisNexis Mortgage Industry Data Exchange in 2013 involved some kind of fraud or misrepresentation in the loan application, the Atlanta-based company said. Comparatively, this figure was 69% in 2012 and 61% the year before.

Even though overall fraud is rising, appraisal and property valuation fraud reached a five-year low. LexisNexis revealed that 15% of loans reported appraisal and property valuation fraud in 2013. A year earlier, 26% of loans showed signs of this type of fraud following 31% in 2011 and 33% in 2010. The drop over this four-year time period is due to regulatory changes, said Tim Coyle, senior director of financial services for LexisNexis.

"When the Home Valuation Code of Conduct went into effect in 2009, lenders could no longer work directly with appraisers," Coyle said. "This landmark regulation, which disrupted the historical appraisal process, has everything to do with the drop in this year's appraisal fraud."

For the fifth straight year, Florida was ranked by LexisNexis to have the highest incidents of mortgage fraud. The top five is respectively rounded out by Nevada, New Jersey, Arizona and Illinois, LexisNexis said.

Meanwhile, just four years ago, Utah reported a minimal amount of mortgage fraud activity. However, Utah was ranked seventh in the latest report regarding its problem of mortgage fraud, right below New York.

"The results of this study clearly demonstrate that the mortgage industry is making progress in combating fraud in some areas, such as appraisal fraud, but still has a lot of work to do in other areas, such as misrepresentation on credit documentation, which leapt from 5% in 2012 to 17% in 2013," Coyle said.