National mortgage fraud risk is down 2.3% from a year ago and is 1% lower from the previous quarter, but is still at an elevated risk, Interthinx said in its latest Mortgage Fraud Risk Report.
According to the Agoura Hills, Calif.-based firm, the changes coincide with lender reports that borrower quality has greatly improved.
For the fifth consecutive quarter, Nevada and Arizona are the two most risky states for fraud. California, which contains five of the 10 most risky MSAs, is now the third highest state for fraud risk after holding the fifth spot last quarter. Florida and Colorado, which jumped eight spots in the report, round out the top five states.
The 10 states with the lowest fraud risk include West Virginia, Kansas, Iowa, Maine, Kentucky, New Mexico, Nebraska, Wyoming, Mississippi and Montana.
The report also found a shift in fraud risk for local ZIP codes. Two ZIP codes in Chicago had the highest fraud risk for the last four quarters, but as of this report, the Chicago area does not appear in any of the top 20 fraud indices—identity, occupancy, property valuation and employment/income—the firm tracks.
“The recent decrease in mortgage fraud risk in the Chicago ZIP codes was as dramatic as it was sudden as the city has been drawing attention for a year,” said Kevin Coop, president of Interthinx. “It suggests that when the industry has actionable intelligence and increases its scrutiny of an area, word gets out and the fraudsters move on.”
There was a resurgence of fraud risk in the second quarter for Miami, as the region contains three of the top 20 ZIP codes. The city was also ranked the highest in identity fraud risk for the third consecutive quarter, second in occupancy fraud risk and ninth in property valuation fraud risk. Overall, Florida has five of the top 10 and eight of the top 20 riskiest ZIP codes nationwide.
The most risky MSA throughout the country was Stockton, Calif., which was nearly double the national value for fraud potential. Four other California MSAs were also in the top 10 including Modesto, Riverside, Bakersfield and Salinas.
“Stockton experienced a surge of new construction and population inflows during the real estate boom as homebuyers fled the San Francisco area in search of affordable housing. The increased consumer demand led to extreme price appreciation and abuse of stated income loan programs led to borrowers obtaining unsustainable loans,” Interthinx said in its report. “As these trends reversed following the mortgage meltdown, Stockton experienced severe price declines of 57% from peak and by 2008 it had the highest foreclosure rate in the nation at 9.46%”
Additional features that the firm tracked in this report are specific characteristics relating to a loan such as its purpose and amount, the borrower's income and FICO score and the property type and its appraised value.
The report revealed that for occupancy type, mortgage applications by investors are much riskier than those by borrowers who intend to occupy the property or use it as a second home.
When looking at specific loan amounts, identity, occupancy and employment/income fraud risk increased steadily as the loan amount increased, with the highest risk levels being associated with loans above $300,000. However, mortgage fraud risk and property fraud risk both rose gradually to the old conforming loan limit of $417,000 and then flattened out once it reached this amount.
