Fraud & Investigations

Distressed Sales, Federal Programs Drive 20% Jump in Mortgage Fraud

Posted on Monday, November 22, 2010

Mortgage fraud has increased by more than 20 percent since fraud rates reached their lowest point in early 2009, according to CoreLogic.
The company says higher risk, high-volume loan programs, including those offered by the Federal Housing Administration (FHA) and the government’s Home Affordable Refinance Program (HARP), as well as short sales and REO sales accounted for much of the increase.
“Fraud continues to shift to areas of the lending business where large volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place,” said Tim Grace, SVP of fraud solutions at CoreLogic.
Grace says over the last seven quarters, fraud risk associated with refinancing has grown approximately 30 percent.
The company’s analysis also found that REO sales pose a greater risk than short sales, with one in every 24 REO transactions associated with a fraudulent resale.
According to CoreLogic, there were 60,000 single-family short sales completed in the second quarter of 2010 – an all-time high – with REO transaction volume more than twice that. Both types of distressed property sales have increased steadily and rapidly over the last few years.
CoreLogic found that investment companies are involved in a disproportionately high percentage of suspicious re-sales of REO and short sale homes. Southern California, Phoenix, Detroit, and Atlanta were singled out as the hot spots for illegal house flipping and flopping, in which the property is overvalued or undervalued, respectively, to sell for an inflated profit.
Lenders have reported that occupancy fraud, employment fraud, and undisclosed debt are also on the rise, according to CoreLogic. Income fraud is still the most common type mortgage fraud, but it is trending down.
According to CoreLogic’s drill-down fraud metrics, the riskiest neighborhood in the United States is Douglas in the District of Columbia, ZIP 20020.
Other top ranking neighborhoods include: Reynoldstown, North Carolina (27101); East Garfield Park, Illinois (60612); Bedford-Stuyvesant, New York (11205); and Castle Hill, New York (10473).
Despite increased fraud activity during 2010, Grace says the industry has made substantial progress in curbing fraud from the levels it reached during the height of the market in 2007. He stressed, though, that the only way lenders can preempt today’s evolving fraud schemes is through collaborative tools and information.
CoreLogic’s latest mortgage fraud report is based on its analysis of seven million loan files issued from the first quarter of 2005 through the second quarter of 2010.
By: Carrie Bay

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