Property valuation fraud risk in the first quarter was up from a year ago, while mortgage fraud risk remained unchanged, according to an Interthinx report.

Property valuation fraud, where a scammer manipulates a home's value in order to create equity that is then extracted from loan proceeds, was up 17% on an annual basis, Interthinx reports.

The rise in valuation fraud was attributed to a scheme in which fraudsters purchase and list multiple properties in the same neighborhood, which lets them "dominate and control prices in that market," said the Agoura Hills, Calif.-based subsidiary of First American Financial Corp. (FAF).

Specifically, fraudsters use the transactions to artificially set sales prices to their liking. In addition, there was greater frequency of properties being appraised higher than traditional valuation thresholds, Interthinx notes in the report.

"The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions," Jeff Moyer, president of Interthinx, says in the report.

"To make lending decisions with increased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing."

The rise in property valuation fraud was offset by decreases in identity and employment/income fraud risk from a year earlier by 13% and 22%, respectively. California had the highest likelihood for fraud in the first quarter, Interthinx says, as it contained eight of the 10 riskiest metropolitan statistical areas. The top 10 fraud risk list was rounded out by Washington, D.C., Florida, Maryland, Arizona, Connecticut, New Jersey, Massachusetts, Arkansas and Colorado.

Meanwhile, for the first time since the report began five years ago, Nevada was not one of the top 10 riskiest states. Conversely, Mississippi was deemed to be the least risky state for mortgage fraud in the first quarter, followed by Iowa, Nebraska, North Dakota and Montana.

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