Employment and Income Fraud on the Rise

While incidences of mortgage fraud have remained steady over the past six quarters overall, submissions of fraudulent employment/income information are on the rise, according to the latest ""Mortgage Fraud Risk Index"":http://www.interthinx.com/pdf/11_Q3MFRR_FNL.pdf by Interthinx.

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Employment/income fraud on mortgage applications increased 8.8 percent during the third quarter of 2011.

The sharp turns in this category of fraud throughout the past few years reveal certain market occurrences.

First, employment/income fraud increased sharply between the first quarter of 2006 and the third quarter of 2007 when it reached its record high of 196. This happened as borrowers inflated their incomes to qualify for loans at the height of the real estate bubble.

After its high in 2007, employment/income fraud began to decline, falling by more than half into the third quarter of 2009 as low-documentation loan programs used during the real estate bubble were eliminated and housing became more affordable.

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Since then, falling income levels combined with stricter lending requirements have sparked another increase in employment/income fraud, which has doubled from its 2009 rate to 114.

In contrast, overall mortgage fraud â€" across all regions and categories â€" has remained steady for six quarters, showing a slight downward movement of -0.1 percent over the third quarter of 2011 and a 0.9 percent increase from last year.

The third quarter rate stood at 143, according to the Interthinx report.

While employment/income fraud increased over the past quarter, it was balanced out by occupancy fraud, which declined 11.7 percent, and identity fraud, which decline 1 percent.

Property valuation fraud increased 1.1 percent over the quarter.

On a regional basis, Burlington, Vermont, ranked first in identity fraud and employment/income fraud and third in occupancy fraud.

Also, in keeping with the past six quarters, Nevada and Arizona ranked highest for mortgage fraud across all categories at 255 and 243 respectively, compared to the national rate of 143.

California ranked third but was 47 points below Arizona. However, California posted a large showing in the lists of top 10 metropolitan statistical areas (MSAs) and top 10 ZIP codes for fraud.

Half of the top 10 MSAs were located in California, and seven of the top 10 ZIP codes were located in the state.