Mortgage Fraud Risk Increases 3.2%: CoreLogic

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In the second quarter of 2014 fraud risk increased 3.2% year-over-year, according to the CoreLogic Mortgage Application Fraud Risk Index.

The CoreLogic Mortgage Fraud Report estimates that in the second quarter approximately $3.3 billion in mortgage debt contained elements of fraud or serious misrepresentations. While for the 12 months ending the second quarter, the total value of applications with such issues amounted to $19.8 billion.

The CoreLogic Mortgage Fraud Report indicates access to mortgage credit has modestly expanded "with only a slight increase in fraud risk," Michael Bradley, senior vice president of analytics at CoreLogic, said in a press release.

Roughly 11,100 or 0.69% of all mortgage applications filed during the quarter contained elements of fraud, down from 19,700 or 0.67% in the second quarter of 2013, "when the total application volume was substantially higher," analysts note.

The report analyzes the collective mortgage industry level loan application fraud risk as measured by the CoreLogic Mortgage Application Fraud Risk Index, which is based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager. The platform uses predictive fraud scoring technology to process data for the following six application fraud type indices: employment, identity, income, occupancy, property and undisclosed debt. The findings are used to complement the national index.

Second-quarter findings also show Florida experienced the highest year-over-year growth in mortgage application fraud risk, while Arizona experienced the largest decline. By fraud type, property fraud risk had the largest year-over-year increase at 3.3%, while undisclosed debt risk had the largest decline of 22.7%. Fraud risk has also been high in jumbo mortgages and low-down-payment mortgages.

Trends currently affecting the mortgage market include the conversion of an additional 3.2 million single-family properties into rental properties since 2006, among others leading to increases occupancy and rental income fraud risk, or incorrect valuation and fraud-for-profit schemes especially in judicial foreclosure states and high vacancy areas.

Meanwhile, increasing home values have enabled "many homeowners with previously marginal equity to purchase a different property, refinance, or obtain a cash-out home equity loan or HELOC," Bradley explained. In addition, job creation combined with "the aging of negative credit report records from the beginning of the recession" has allowed more consumers to qualify for mortgages, he said.

A helpful trend, according to Bradley, is that financial institutions are increasingly relying on advanced analytics "to relax credit overlays and expand the credit envelope."

In addition, regulation and higher government scrutiny are expected to help minimize fraud.

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