The risk for mortgage fraud in the areas of employment and income rose last year, according to an annual report from Interthinx.
The firm’s Mortgage Fraud Risk Report found that incidents of employment and income fraud increased 14% during 2011. This follows an upward trend seen over the last two years in which these fraud activities occurred 45% of the time.
Interthinx said more employment and income fraud— when a borrower’s income is misrepresented in order to qualify for a loan—is taking place because of the decline in home prices being outpaced by the decline in the income of working households combined with more stringent underwriting and documentation requirements. In particular, this type of risk is particularly high for investor loans for high-value properties, the Agoura Hills, Calif.-based firm said.
“Keeping our guard up as risk profiles shift requires our industry to think as creatively as the criminals,” said Kevin Coop, president of Interthinx. “That’s only possible when lenders have access to the best data and analytics available.”
The same six states from 2010 remained the riskiest places for mortgage fraud in 2011, led by Nevada.
Over the last eight years, Nevada has experienced a cycle of fraud leading to an artificial boom followed by a devastating bust resulting in the largest house price declines, unemployment rates and foreclosure rates in the nation. High fraud risk, associated in particular with foreclosure and short sale schemes, contributed to Nevada retaining its top position for mortgage fraud risk across the country.
Other top states for the most potential for mortgage fraud were Arizona, Florida, California, Colorado and Michigan.
Meanwhile, the states having the lowest fraud risk also are similar to the prior year with Kansas, West Virginia, Maine and South Dakota leading the way.
Additionally, 16 of the 20 riskiest metropolitan statistical areas in 2011 were repeat markets from 2010. All top 20 of the riskiest MSAs are located in the four riskiest states: 11 in California, and three each in Nevada, Arizona and Florida. The California cities of Merced, Stockton and Modesto are the top three riskiest places for fraud, while the entire Chicago MSA saw a dramatic decrease in high-risk transactions in 2011.
“This alarming degree of persistence suggests that it is going to be a long road back for these MSAs and states, particularly since current fraud risk is closely associated with underwater borrowers and distressed/foreclosed properties and these MSAs are all experiencing high levels of foreclosure activity,” the report said.
