Mortgage fraud risk plunges in lower rate environment: CoreLogic
The risk for fraud on a mortgage application plummeted 13.2% in the second quarter of 2019 from three months prior, and declined 11.4% over the same period last year. This is according to CoreLogic's National Mortgage Application Fraud Risk Index, which posted its first decline in three years.
But this doesn’t necessarily suggest the industry has all of a sudden cracked the code on preventing fraudulent information from slipping through. Reduced mortgage rates spurred market activity as more homeowners applied for refinance loans, so the decline could represent a similar amount of fraud compared to the past, but just in a bigger pool.
"I don't believe the drop in the fraud risk index means there is less total fraud in the marketplace. Rather, the recent influx of low-risk rate/term refinance transactions made the population larger, diluting the concentration of fraud," explained Bridget Berg, CoreLogic's principal of fraud solutions.
The share of refinance transactions in 2Q19 grew to 35.5% from 32% in the previous quarter, with the risk levels in every segment of these kinds of transactions shrinking anywhere from 12% to 30%, Corelogic's report said. Rate-driven refinances are typically lower-risk, which was reflected in an improved risk score.
The Mortgage Application Fraud Risk Index declined to 132 in the second quarter from 152 at the start of the year.
The Albany-Schenectady-Troy, N.Y., core-based statistical area did see a considerable spike in mortgage fraud risk. The CBSA bucked the national trend and realized a 61% increase in fraud risk, but it didn't see the refinance surge present across most of the country. About 82% of transactions in the region were purchases.
This could also be "tied to higher origination costs in New York, raising the break-even point for rate/term refinances," according to Berg.