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Interthinx: Mortgage Fraud Risk Edges Up in 2012, Moves East

Mortgage fraud risk saw a slight increase last year, with the largest concentration located in the eastern half of the country, ""Interthinx"":http://www.interthinx.com/ revealed in its annual Mortgage Fraud Risk Report.


According to the yearly report--based on analysis of loan applications processed throughout 2012 by Interthinx's FraudGUARD system--the 2012 Annual Mortgage Fraud Index was 150, a 3.4 percent rise from 2011's index reading of 145.

According to Interthinx, the increase ""reflects the overall rising trend in mortgage fraud risk observed over the past two years and is attributed to market stabilization, tightening housing inventory, and home price increases.""

The firm also observed a notable shift in fraud risk from west to east, with seven of the top 10 riskiest states located in the eastern half of the United States.

""Hit hard by mortgage fraud and foreclosures early in the boom years, many of these states are judicial foreclosure states where real estate sales activity was depressed before the 'robo-signing' foreclosure abuse lawsuit was settled,"" Interthinx explained. ""The rise in fraud risk is an indicator that these markets have hit a true bottom, since rising markets are more attractive to fraudsters seeking profits, and fraud is easier to commit when property values are increasing than when they are decreasing.""


""Mortgage fraud risk is persistent and invasive because fraud schemes opportunistically adapt to market shifts,"" said Jeff Moyer, president of Interthinx. ""The Mortgage Fraud Risk Report findings from 2012 remind us it's in our industry's best interests to safeguard the entire residential finance life cycle vigilantly.""

While the East housed more risky states last year, the West was home to two of the riskiest--Nevada and Arizona, which ranked first and third in terms of risk, respectively. California dropped to sixth place--its first time finishing out of the top five since the report's inception in 2010--though it contained eight of the riskiest metropolitan statistical areas (MSAs) in terms of Employment/Income Fraud, five of the 25 riskiest ZIP codes, and six of the riskiest MSAs overall.

According to Interthinx's report, Employment/Income Fraud Risk was up 7 percent nationally from 2011 and was particularly concentrated in Northern California. Occupancy Fraud Risk declined 11 percent, meanwhile, likely reflecting investors' ability to use cash for purchases.

Despite the decline in Occupancy Fraud Risk, Interthinx noted ""investor loans remained significantly riskier than owner-occupied and second-home loans.""

By loan type, purchase loan applications with loan-to-value ratios (LTVs) of exactly 20 percent proved especially risky, earning a Mortgage Fraud Risk Index of 637. Interthinx explained those loans are likely associated with ""piggyback"" type loans in which the borrower originates a loan with an LTV of 20 percent for simultaneous use as the down payment with a loan with a second lender for 80 percent of the property value.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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