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Fraud risk in the mortgage industry has declined by 25 percent since it peaked in the third quarter of 2007, according to a new report from ""CoreLogic"":http://www.corelogic.com. But further analysis by the California-based company reveals that despite the falloff in mortgage fraud risk, one in 200 home loans still contain misrepresentations that could result in default.
[IMAGE]The 2010 Mortgage Fraud Trends Report released by CoreLogic Wednesday shows that overall fraud risk within the industry appears to have leveled off in 2009. However, one area of increasing concern is short sales, which have quickly gained momentum and popularity as a preferred foreclosure alternative.
CoreLogic reports that short sale volume from the first quarter of 2008 through the fourth quarter of 2009 increased by more than 300 percent. Here too, nearly one in every 200 were deemed ""very suspicious"" by lenders, meaning there was a new sale transaction less than 60 days after the short sale and the sale price was more than 20 percent higher than the short sale price.
Looking at the full spectrum of mortgage products and fraud trends, lenders identified income misrepresentation as the most common type of fraud, followed by internal fraud. Also ranking high were falsifications related to borrower identity, occupancy, and the property itself.
[COLUMN_BREAK]CoreLogic says recognition of mortgage fraud is up within the industry. Lenders are acknowledging the existence of fraud in their portfolios and reporting more fraudulent loans than they have in the past, with the highest percentage of incidences related to Federal Housing Administration (FHA) loans.
Tim Grace, SVP of fraud analytics at CoreLogic says lenders' aggressive stance against fraud is having an impact. But with an estimated $14 billion in fraud losses experienced in 2009 alone, he says fraud remains a ""major issue"" for the mortgage industry.
""While the industry has done good work there is evidence that fraud patterns are changing and becoming increasingly better hidden,"" Grace said.
One tell-tale finding from the CoreLogic report was the fact that there is a high correlation between fraud risk and subsequent default rates. For example, of the top 12 highest ranking CoreLogic Fraud Index states in 2007, nine were in the top 12 highest ranking default states in 2009.
Income stratification within the CoreLogic data found unexpected areas of fraud risk concern in Wyoming, in addition to well-known high-risk areas such as California and Georgia, while identity stratification confirmed that Arizona is one of the highest-risk states for identity fraud.
The Midwest and East Coast represent a significant risk for employment and undisclosed debt fraud. The analysis also found that reported home equity line of credit fraud is highly concentrated in California. Hot spots include Glendale, Pasadena, North Hollywood, and San Jose.
CoreLogic's Fraud Index can be used to identify patterns and clusters of fraud at the state, ZIP code, and even individual street level.
Florida, South Carolina, North Carolina, California, and Georgia are the highest ranking states for mortgage fraud. The highest risk ZIP codes are: Jamaica, New York; Orlando, Florida; Miami, Florida; Atlanta, Georgia; and Detroit, Michigan. The top scoring street was in Orlando, Florida.
