Mortgage fraud risk declined overall in the third quarter of 2014, though some categories still remain tricky as rising costs present a challenge to homebuyers.
Based on an analysis of loan applications passing through its own fraud detection technology, Interthinx said Tuesday that its national Mortgage Fraud Risk Index measured 98 in Q3 2014, down 2 percent from the quarter prior and 9 percent from the same quarter a year ago.
The findings align with CoreLogic's latest fraud report, which revealed application fraud risk was down across all categories—except home equity lending, which has seen risk indicators rise as demand grows.
While the overall trend indicates an ongoing drop in fraud, a handful of states are still particularly bad in terms of high-risk markets, including Florida, California, and Arizona, all of which have "disproportionately higher levels of distressed property sales and investor activity," Interthinx said.
Also included on that list are New Jersey, Connecticut, and Illinois, which have higher than average levels of both occupancy fraud risk (usually committed by investors) and property valuation fraud risk as straw buyers dominate some of the local markets.
At the national level, Interthinx's Property Valuation Fraud Risk Index was 122 as of Q3, down 5 percent quarter-to-quarter but up 20 percent year-to-year.
The national Occupancy Risk Index was 133, up 4 percent over the quarter but down 10 percent from the year prior.
Also declining in Q3 was Interthinx's measure of employment/income fraud risk, which dropped both quarter-over-quarter and year-over-year to 59. California was far and away the riskiest state for that category, contributing nine of the top 10 riskiest metro markets, including the No. 1 spot: Fresno, which posted an index value of 133.
The one outlier was Boulder, Colorado, which took the No. 2 spot with an index of 123—an 81 percent spike from the second quarter.
While increased scrutiny brought on by last year's ability-to-repay rule helped drive down employment/income fraud in the latest index reading, decreases in housing affordability are keeping levels up in those high-risk markets, Interthinx said.
"Housing price pressure and home affordability can closely correlate with fraud risk," said Jeff Moyer, president of Interthinx. "When first time or lower income homebuyers face challenges during the qualification of credit, it can open the door to potential risk factors."
He added, "Conversely, in the most affordable markets—where median income exceeds monthly housing expense, deposits are stronger, and consumer debts are lower, there is less likelihood to misrepresent income and our indices show comparatively lower fraud risk."