Fraud & Investigations

Fraud Criminals Migrate to Hardest Hit Areas

Posted on Monday, April 4, 2011

Data released Monday shows an increase in mortgage related fraud in areas with high rates of foreclosure activities and underwater borrowers.
Risk analytics firm Interthinx released its annual Mortgage Fraud Risk Report which analyzes loan applications and determines the most significant mortgage fraud risk trends for the past year.
According to the report, the most risky states were Nevada, Arizona, California, Michigan, and Florida, which are all states that experienced high unemployment and foreclosure rates, as well as extreme drops in property values over the past few years.
Nevada and Arizona have fraud risk index values of 247 and 222, respectively. These two states also had the highest levels of foreclosure sales, at 57 percent of all sales for Nevada and 49 percent of all sales for Arizona.
The nation’s fraud risk index value is 144.
“The correlation between mortgage fraud risk and level of foreclosure sales is consistent with the increase in fraud
schemes that seek to take advantage of opportunities presented in distressed markets, such as “flopping” (deflating short sale values in order to generate a profit margin on a subsequent flip at an increased value), and foreclosure rescue-related schemes,” the report said.
According to the analysis, repeat sales with large positive price movements over a short period of time are strong indicators of illegal flopping.
California’s overall risk index value actually decreased to 180 points, from 222 in 2009. According to California-based Interthinx, this can be explained by a migration of fraudulent criminals to more vulnerable areas, such as Nevada, which saw its overall risk index value increase more than 30 points last years.
The report also highlights a risk in “for property” fraud, in which borrowers committed fraud through stated income loans and no-document loan programs. Though many lenders, experts and even the Federal Bureau of Investigation consider “for profit” fraud more of a threat, the Interthinx report shows that “for property” fraud is what helped bring about the current housing situation, as many borrowers who had committed “for property” fraud to obtain homes during the boom began to default.
“As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” said Kevin Coop, president of Interthinx.
He continued, “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them. Most disturbing is the link between foreclosure activity and mortgage fraud. It’s critical that we, as an industry, tirelessly keep our guard up and think as creatively as the criminals.”
By: Joy Leopold, DS NEWS


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