Mortgage Fraud Risk Spreads Easily to Surrounding Areas: Report

A new ""study"":http://www.interthinx.com/pdf/10_Q4MFRI_FNL.pdf by analytics firm ""Interthinx"":http://www.Interthinx.com says mortgage fraud risk has been spreading from ZIP code to ZIP code.

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The company's quarterly Mortgage Fraud Risk Report covers data collected from the fourth quarter of 2010 and tracks overall and type-specific mortgage fraud risk. It provides an in-depth analysis of fraud risk from specific ZIP codes.

The report shows that previously localized risks in one or more ZIP codes are in danger of spreading throughout a metropolitan area.

As an example, the report highlights a Chicago ZIP code that has been the riskiest ZIP code in the United States for three quarters. The Interthinx risk report shows the ZIP code may have driven risk higher for the whole city, noting that Chicago's overall risk has increased

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dramatically since the second quarter of 2010, from moderate to very high.

To top it off, the quarter on quarter increase of risk index points for the state of Illinois was 26, the largest nationally.

In a statement, the company said, ""This data suggest that ‘very high' fraud risk at the ZIP code level can, in a short period of time, spread and elevate the overall risk of much large geographies.""

The report indicated that short and REO sales make up a significant share of all of the sales in many high-risk metropolitan areas. According to the company, the problem with this is servicers and loss mitigation departments typically do not screen for fraud when coordinating short sales.

""With employment/income and identity fraud risk up by more than 25 percent in 2010, lenders need to be more vigilant about using fraud detection systems during refinancings, modifications, and purchase transactions that involve the resale of distressed properties,"" said Kevin Coop, president of Interthinx.

He continued, ""In addition, short sales represent an acute risk to lenders. The large number of distressed borrowers, the lack of risk controls, and government pressure to avoid foreclosures are producing an environment that in some ways resembles the mortgage market of 2005 to 2006. Lenders and servicers who do not employ robust risk controls and analysis at every stage of the mortgage life cycle face significant financial losses.""