Risk of Mortgage Fraud on the Rise
Written By: Joel Palmer, Op-Ed Writer
A year after a 37 percent annual increase in mortgage fraud risk, the risk of fraud in mortgage lending may be greater in 2022, according to a recent report by CoreLogic.
Following up on its annual fraud report last fall, CoreLogic, a property information, analytics and data-enabled solutions provider, said last month that the risk of mortgage fraud is still even higher than last year.
“The main drivers of the increase in fraud risk are the lower volumes of rate-term refinances and higher share of mortgages for the purchase of a home,” CoreLogic wrote last month. “Purchase transactions have higher fraud risk than refinances. In a purchase, there are more parties involved, more commissions, and more motives to ‘make the deal work.’”
“The mortgage proceeds aren’t just moving from one bank to another to lower an interest rate as is the case with most refinances. As a result, we’ve seen increases in transaction fraud risk, which includes situations like straw borrowers and falsified down payments.”
CoreLogic estimated the current application fraud rate to be one in every 120 loans. That rate drops to one out of 90 for purchase loans and one in 23 when analysis is limited to investment purchases.
Fannie Mae’s most recent analysis of submitted fraud tips echoes CoreLogic’s findings. Tip volume has grown in each of the previous four quarters, with quarterly volume more than double in the third quarter of 2021 than it was in the third quarter of 2020.
Although the instances of mortgage loan fraud are still a fraction of what the industry saw leading up to the 2008 financial crisis, Fannie’s analysis found roughly 1,800 instances of mortgage fraud in 2020, triple the amount in 2018.
CoreLogic noted that FHFA instituted a limit on fundings for investment and second home loans last year. This made pricing and qualifications for these type of loans more restrictive, which CoreLogic said contributed to a 6 percent increase in the indicators for occupancy fraud risk. CoreLogic also wrote that the recent lifting of that funding cap may reduce the risk in occupancy fraud.
CoreLogic also said it is monitoring the affect of return-to-office mandates on lower cost areas that saw influxes of new residents when work-from-home options were more available. This is in response to FHFA’s announcement last fall that it was instructing Fannie Mae and Freddie Mac to increase their Low-Income Housing Tax Credit investments and by expanding opportunities for local families to access affordable homeownership and rental housing.
“Historically, 2- to 4-unit properties have shown a higher level of risk – with a fraud rate we estimate at 1 in 50 applications – because the loan amounts are larger and there is ability to qualify using future income from the property,” CoreLogic wrote.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
