The idea of occupancy fraud leaves many investors weary, and the latest CoreLogic report found that the latest resurgence in occupancy fraud will alter the dynamic of the housing industry.
According to CoreLogic, reverse occupancy schemes occur when a low-income applicant intentionally misrepresents occupancy status as an investment, although the motive is primary residence, so the anticipated rental income can be used as part of the applicant’s assets to appease the mortgage application debt/income requirement.
Subject properties sold as investments, first-time homebuyers with no or minimal credit, low-income purchasers with liquid asserts verified by bank statements, and purchasers who make large down payments are warning signs that are usually attributed to reverse occupancy schemes.
The report examined investment purchase mortgage applications over the last five years and identified applications with higher risk of reverse occupancy scheme based on the four characteristics listed above. The Core Based Statistical Areas (CBSAs), which are based on U.S. Census population estimates, are determined by calculating the percentage of reverse occupancy scheme prevalence against the investment purchase application population. Results found that New York has the highest reverse occupancy risk among the top 50 CBSAs. Since 2014, New York’s reverse occupancy rate has increased year over year and has reached 13 percent in 2016.
Unfortunately for investors, mortgage fraud is a national epidemic that is a direct peril to the real estate business and the overall health of the housing market. No matter the trend, strategic programs will be devised to cheat the system due to the fluctuating economic and real estate market conditions and government programs, according to CoreLogic. Occupancy fraud and reverse occupancy fraud threaten the landscape of the real estate market, and as the share of purchase applications continue to increase and GSEs expand credit policies, investors have to implement processes to protect themselves and their business.