Mortgage fraud risk is highest in areas with the greatest amount of foreclosures, according to the annual mortgage fraud risk report developed by Interthinx.
The most risky states for mortgage fraud risk were Nevada, Arizona, California, Michigan and Florida. Besides high foreclosure rates, all of these states are also dealing with high unemployment and declining property values.
Nevada and Arizona, which had the highest mortgage fraud risk index values in 2010 with 247 and 222, respectively, also had the highest levels of foreclosure sales at 57% and 49% of all purchase transactions.
All of the top 15 states had fraud risk have index values above the national value of 144. However, the report said the five least risky states—Kansas, West Virginia, South Dakota, Mississippi and Maine—all had index values of less than half the national value.
Interthinx analysts who prepared the report said “the correlation between mortgage fraud risk and foreclosure activity is consistent with the increase in fraud schemes that seek to take advantage of opportunities in distressed markets, such as ‘flopping’ and foreclosure rescue-related schemes.”
Interthinx said mortgage fraud risk migrates geographically as criminals look to take advantage of areas where there is a high proportion of foreclosure and distressed sales, such as Nevada.
As of fourth-quarter 2009, fraud risk levels in Nevada and California were both approximately 220. During 2010, Nevada’s index value increased to 255, while California’s decreased to 180.
“As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” said Kevin Coop, president of Interthinx. “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them.
Despite fraud risk going down in California, the state still has some of the most risky MSAs, including Merced, Calif., which is ranked number one in the nation with an index value of 368. Also, seven of the top ten and 12 of the top 20 MSAs in the nation are located in California.
The report also revealed that the employment/income and identity fraud risk indices both rose nearly 30% over the last year. Interthinx said this is a sign that “fraud for property” is on the rise as friends and family take on debt in order to help those with lower incomes or damaged credit histories obtain housing following a foreclosure.
