Interthinx, a subsidiary of First American Financial Corporation, annually studies loan applications processed by its FraudGUARD system to determine the riskiest places in the country for mortgage fraud. What it found from its study of applications in 2013 was that fraud risk nationally rose by 4 index points to a total of 104. This continues the rising trend in fraud risk observed over the past three years as inventories shrink, prices rise, and markets stabilize.
More alarming is that nationally, the risk of occupancy fraud—whereby a borrower lies that a house will be occupied in order to secure a mortgage—rose 24 percent to an index rating of 135. Greeley, Colorado, was the riskiest for occupancy fraud risk, with an index of 227. According to Interthinx, this increase is likely due to a more purchase-driven market and continued investor interest in acquiring real estate.
The District of Columbia remained atop the list of riskiest states, with a mortgage fraud risk index of 142. California was a close second on the list with an index of 141, which is up 12 percent from 2012. Nevada, Illinois, Florida, Alaska, Hawaii, Colorado, Maryland, and New Jersey rounded out the top 10 riskiest states.
The least risky state in the report is Maine, which has a risk index rating of 55. Mississippi, South Dakota, Nebraska, Wyoming, North Dakota, West Virginia, Vermont, Iowa, and Kansas were the other nine least risky states.
Perhaps encouraging is Interthinx’s finding that the geographic distribution of fraud risk was less dispersed in 2013 than it was in 2012. Still, California holds an unusually intense concentration of risks, claiming nine of the top 10 riskiest metropolitan statistical areas, or MSAs; 18 of the 25 riskiest ZIP codes; five of the 10 riskiest MSAs for identity fraud; seven of the 10 riskiest MSAs for occupancy fraud; and eight of the 10 riskiest MSAs for income and employment fraud.
“What this year’s report clearly demonstrates is the effect of changing markets on fraud operations,” said Ashley Woodworth, VP of business development and corporate strategy at Interthinx. “In previous years, when refinances dominated the market, we saw higher instances of employment and income fraud. Now that the market has shifted to the purchase arena, we’ve seen a corresponding increase in occupancy fraud.”
Interthinx president Jeff Moyer said that because underwriters haven't been exposed to purchase-market fraud schemes in several years, statistical analysis of fraud trends is all the more timely. "The more statistical information we can provide regarding where and how mortgage fraud risk manifests," he said, "the better lenders are able to guard against fraud, which can only help in furthering the recovery of the mortgage industry.”