Risk of Mortgage Fraud in U.S. Hits Historic Highs in 2021

With an overheated U.S. housing market in 2021, new government-sponsored enterprise requirements on investment properties and the transition to a more robust purchase market, mortgage fraud is once again on the rise after a brief dip last year, according to property data company CoreLogic's Bridget Berg.

CoreLogic's National Mortgage Application Fraud Risk Index also reported an increase by 10.5% in Q2, up from a 120 index reading Q1 2021 to 132 in Q2 2021. The year-over-year trend is up 37.2% from Q2 2020 (at 96).

CoreLogic also reported the following key industry trends:

A significant drop in refinance volume was offset by record purchase volumes in Q2, resulting in a slight decrease in overall volume from Q1. While refinances still accounted for 53% of transactions, they are down from 68% the prior quarter. This shift in volume towards purchase loans is reflected in the increased risk indicated by the national index.
To bring more context to the year-over-year increase of the fraud risk index, the index is at nearly the same level it was in Q2 2019, which was 131. At the height of the pandemic refi boom Q2 2020, it had dropped to 96 due to the influx of low-risk rate/term refinances. The rise back to 132 for Q2 2021 is on the historically high end of the index, but is not cause for great concern.
One area to watch is occupancy fraud. As the GSEs limit financing availability for non-primary occupancy, it seems quite likely to increase motivation for occupancy misrepresentation, already one of the most common mortgage fraud risks.
The top 5 states for fraud risk are NV, NY, HI, FL, and CA. All of those states showed risk increases quarter-over-quarter. At the CBSA level, 6 of the top 15 CBSAs are in Florida, and 14 of the top 15 experienced risk increases.

By: Michael Gerrity - World Property Journal

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