Fraud Risk Is Up Due To Challenging Market Conditions

Ten of the 15 metros with the highest fraud risk saw an increase in risk compared to last quarter, CoreLogic reported in its Quarterly Mortgage Fraud Brief.

The report analyzes the metros with the highest mortgage fraud risk in order to get a clear picture of trends found in residential mortgage loan applications processed by LoanSafe Fraud Manager.

CoreLogic’s National Mortgage Application Fraud Risk Index was flat in Q1 2022, falling slightly from 138 in Q4 2021 to 137 this quarter.

Year-over-year, the trend is up 15% at 119.

The Poughkeepsie metro area topped the list for highest fraud risk, with risk up 16% quarter-over-quarter. It’s followed by the Miami, San Jose, Las Vegas, New York, Los Angeles, San Francisco, Stockton, CA, and New Orleans metro areas.

Q1 2022’s report found fraud risk increasing due to a large drop in loan volumes and a decline in lower-risk refinances.

Refis accounted for 46% of loan applications in Q1, and the rate-reduction refi share will decrease alongside an overall volume decline. Plus, more refis will be for cash out. Both of these trends translate to higher fraud risk, CoreLogic says.

As lenders adjust to a more challenging market with lower revenues, many will make cutbacks even as loans become more difficult to originate.

Commission-based employees and borrowers struggling to get a loan approved will drive riskier behavior.

LexisNexis Risk Solutions released its True Cost of Fraud Study for Real Estate at the same time as CoreLogic’s report. It found that a large majority of firms report that overall fraud has increased during the past 1-3 years with consumer fraud accounting for about two-thirds of lender and servicer fraud losses over the last 12 months.

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.

“A successful fraud detection and prevention approach involves an integration of technology, cybersecurity and digital experience operations in a way that addresses the unique risks from different transaction channels and payment methods, as well as by individuals and types of transactions.”