CoreLogic's latest Mortgage Fraud Report, released Tuesday, shows a 3.2 percent year-over-year increase in fraud risk among mortgages in the U.S. in the second quarter of 2014, as measured by the Mortgage Application Fraud Risk Index.
The report also showed that in Q2 2014, mortgage applications representing approximately $3.3 billion in mortgage debt contained elements of fraud or serious misrepresentation. The total value of applications containing elements of fraud or serious representation for the 12-month period ending in Q2 2014 amounted to about $19.8 billion, according to CoreLogic.
The number of mortgage applications containing some element of fraud dramatically decreased year-over-year, from 19,700 (67 percent) in Q2 2013 down to 11,100 (69 percent) Q2 2014, according to CoreLogic. The volume of applications received was substantially higher in Q2 2013, CoreLogic reported.
"Increasing home values have improved home equity, enabling many homeowners with previously marginal equity to purchase a different property, refinance, or obtain a cash-out home equity loan or HELOC," said Michael Bradley, Ph.D., SVP of Analytics at CoreLogic. "Also, job creation, as well as the aging of negative credit report records from the beginning of the recession, have increased the number of consumers able to qualify for mortgages. Finally, more institutions are beginning to rely on advanced analytics to relax credit overlays and expand the credit envelope. All of these trends have expanded access to mortgage credit modestly with only a slight increase in fraud risk, as the CoreLogic Mortgage Fraud Report indicates."
CoreLogic's Mortgage Application Fraud Risk Index is based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager, and the Mortgage Fraud Report includes data relating to six types of fraud: employment, identity, income, occupancy, property, and undisclosed debt.
Florida ranked first among states with the largest year-over-year increase in mortgage fraud risk, according to the report, and Arizona had the largest decrease in mortgage fraud risk over the same period.
CoreLogic reported that changing market conditions likely drove the year-over-year increase in mortgage fraud risk, notably: New government programs, most notably the new ability-to-repay rules, that have placed more scrutiny on debt and irregular income; the large number (3.2 million) of additional single-family properties that have been added to the rental market since 2006, which has increased the potential for consumers showing rental income and multiple mortgages and the potential for occupancy fraud; and the deferred maintenance on some properties combined with other properties rapidly appreciating, which led to large discrepancies in value among properties within a close proximity of each other, thus increasing the potential of fraud-for-profit schemes and incorrect valuation. Areas with high vacancy and judicial foreclosure states most often reported this type of fraud, according to CoreLogic.