Fraud Risk Fell Overall In Q2, Though Fraud Associated With Purchase Loans Ticked Up

Mortgage fraud risk dropped 7.5% YOY in Q2 2022, with one in 131 mortgage applications containing instances of fraud, CoreLogic reported.

In contrast, Q2 2021 saw fraud in 1 in 120 applications.

Mortgage fraud is defined as the deliberate act of lying or omitting information that is used by an underwriter or lender to fund, purchase, or insure a mortgage loan.

CoreLogic’s Mortgage Fraud Risk Index showed fraud risk in mid-2022 coming down from a point of high risk in 2021.

The company said it is also partly due to a recalibration of its sourcing model in Q1 2022. After the update, the index showed higher risk during certain months in Q2. For example, while overall fraud risk fell, income and property types saw a year-over-year risk increase, up 27.3% and 22.6% respectively.

CoreLogic notes this uptick is not so surprising when considering that purchase loans now account for most originations and are more susceptible to fraud.

“Income fraud risk remains a top concern for lenders, but there is a rising focus on property value risk as home prices slow their growth and homes are taking longer to sell,” said Bridget Berg, principal, Industry & Fraud Solutions.

“CoreLogic data backs up those concerns, as our most predictive flags for both income and property frauds increased in the last year by more than 20%.”

Fraud has been a serious concern for firms throughout the pandemic. A majority of firms said that the pandemic increased application fraud across channels, not just for online and mobile systems.

“Although the future is uncertain, it’s safe to assume that the accelerated movement to online/mobile transactions will continue to grow and that mortgage originators, servicers and title/settlement companies should build out and enhance the digital customer experience while protecting against fraud,” said Dawn Hill, Director of Real Estate Fraud and Identity Strategy at LexisNexis Risk Solutions.

Five of the six types of mortgage fraud types CoreLogic tracks showed higher risk since Q1 2021. The exception was undisclosed real estate debt, which dropped by 12% YOY.

The top states for fraud risk increases are Rhode Island, South Dakota, Kentucky, New York, and Nebraska. States with fewer residents tend to have volatile index values because high-risk loans are more likely to make an impact on the numbers.

New York is the top state for mortgage application fraud risk, followed by Florida, Rhode Island, Nevada, and Connecticut.

Of course, fraud can go both ways: Some lenders have allegedly committed fraudulent acts ranging from sham interviews to improper origination of government-backed loans.

Read More Articles:

Bad Behavior In Lending: Sham Job Interviews, “Rampant” Fraud

Leaders: Putting People First Pays Off

Labor Day Blues: Can The Average American Worker Afford To Buy A House?

Inflation Hits Builders As America Faces Housing Crisis

Email story ideas to Editor Kimberley Haas: [email protected]