Mortgage application fraud risk climbs in 3Q from decade low

The increased share of purchase applications in the third quarter — following the refinance wave that crested in the second — caused a rise in mortgage application fraud risk, according to CoreLogic.

The Mortgage Application Fraud Risk Index crept up 2.4% to 99 in the third quarter from a revised 96 in the second — its lowest point in a decade. However, it’s still down 15% from 116 year-over-year. This marks only the fourth time the index went below 110. CoreLogic set a baseline score of 100 when it created the metric in the third quarter of 2010.

The risk index grew in union with the third quarter’s increasing share of purchase applications compared to the second. As the refinance boom of record-low interest rates gave way to buyers — especially first-timers — it brought a comparatively heightened fraud risk for purchase applications.

"Purchase segments consistently showed small risk increases, while refinance segments maintained their risk levels from the prior quarter," Bridget Berg, principal of fraud solutions at CoreLogic, said in a statement to NMN. "We expect to see fraud risk levels tick up in the future as the refinance volumes reduce and purchases account for more of the transactions."

Among the 100 most populated U.S. housing markets, the Poughkeepsie-Newburgh-Middletown, N.Y., area took over the top spot with a fraud index value of 219, a 15% jump from the second quarter.

McAllen-Edinberg-Mission, Texas, posed the second-highest risk at 165. McAllen, in particular, continues to exhibit fraud risk due to a high share of foreclosed properties. The Las Vegas-Henderson-Paradise, Nev., metro area came third at 163. In addition to mortgage fraud risk, Las Vegas faces increased odds of declining home values in 2021 since the coronavirus impacted its economy especially hard.

Miami-Fort Lauderdale-West Palm Beach and Cape Coral-Fort Myers, Fla., rounded out the top five with scores of 157 and 144, respectively. Florida remains a magnet for mortgage fraud, as eight of the top 15 most at-risk markets reside in the state.