Fraud Risk Spreads as Perpetrators See Conditions Ripe Across Country

""Interthinx"":http://www.interthinx.com has released its quarterly ""Mortgage Fraud Risk Report"":http://www.interthinx.com/pdf/11_Q1MFRI_FNL.pdf covering data collected in the first quarter of 2011. The company found that the geographic distribution of fraud risk has ""evened out"" since its fourth-quarter 2010 study as faltering market conditions across the country have enticed fraudsters to try their hand.

[IMAGE] Interthinx recorded only small bi-directional changes in the national Mortgage Fraud Risk Index, reflecting a relatively flat trend over the last year. The company says although the index remains elevated, it is down 5 percent from a year ago and up just 2 percent from the fourth quarter.

Many of the states that were considered ""most risky"" at the end of last year experienced decreases in risk. Only three -- Hawaii, Rhode Island, and Maryland â€" saw significant increases in their individual risk indexes.

Despite a decline in its index reading, Nevada remains the state most at-risk for mortgage fraud.

The mitigation of risk on the high end, though, was countered by a rise in the chance for mortgage fraud at the other end of the spectrum. All but one of the 25 least risky states in Q4 saw an increase in their index values during the first three months of this year.

Of all the states, Wyoming, South Dakota, Connecticut, and then the aforementioned high-risk Hawaii were

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reported to have the largest increases in their index values.

According to Interthinx, driving the increases was a sharp rise in the risk associated with occupancy and employment/income fraud.

Occupancy fraud is perpetrated primarily by investors who falsely claim the intent to occupy the purchased property in order to obtain a mortgage with lower down payments or interest rates, the company explained.

After four consecutive quarters of declines, the Occupancy Fraud Risk Index jumped by 25 percent in Q1, erasing the decreases it experienced over the last year.

The metros of Miami and Detroit are the most at-risk for occupancy fraud, according to Interthinx’s study.

Employment/income fraud occurs when an applicant’s income is misrepresented in order to qualify for a loan. This overall index has risen 16 percent over the past year.

Honolulu now has the highest index value for employment/income fraud, up 78 percent in the past 12 months.

Identity fraud is frequently used in mortgage fraud schemes in order to obtain a credit profile that will meet lender guidelines. Interthinx’s Identity Fraud Risk Index is down 5 percent from the fourth quarter but has increased by 10 percent from the first quarter of last year.

The Cleveland metro has retained the highest index for identity fraud for three consecutive quarters.

Property valuation fraud is perpetrated by manipulating property value up (flipping) or down (flopping) in order to create a profit margin on resale of the property, according to Interthinx. Its associated risk has declined, down 12 percent from the fourth quarter of 2010 and down 22 percent over the previous 12 months.

Las Vegas holds the top ranking for risk related to property valuation fraud, although it too is seeing double-digit declines.