About $13 billion of residential mortgages
originated in 2012 could contain fraudulent information, a $1 billion increase
over estimates for both 2010 and 2011. CoreLogic's Mortgage Fraud Trends Report projects this increase because of sharp
growth in the incidence of both employment and identity fraud coupled with
higher mortgage origination volumes.
CoreLogic's National Mortgage Fraud
Index rose 6.23 percent in the first quarter of 2012 to 85 from 80 in the first
quarter of 2011 and is up by 27.5 percent from its low point of 67 in the first
quarter of 2009 to the highest level for the measure since 2007. The index provides a relative basis of
comparison over time for residential loan origination fraud risk and represents
the collective level of mortgage fraud that is likely to occur. It includes risk indices across multiple
fraud types including employment, identity, income, occupancy, property and
Employment related fraud is
described by CoreLogic as "swelling under pressure - unemployment pressure." Employment fraud risk rose by 50 percent
between the first quarter of 2011 and the first quarter of 2012 driven by
continued challenges in the U.S. labor market. Florida, Nevada and Arizona, all
with above-average rates of unemployment, lead the nation in employment fraud
risk. Identify theft has followed a
similar pattern with a 44 percent increase over the same time frame.
The Income Fraud Index is trending
downward, possibly as a result of the use of requests for tax transcripts on an
increasing number of originations. The
Occupancy Fraud Index has been flat since the first quarter of 2011
The Property Fraud Index has
decreased over the last four quarters but remains elevated because of
increasing short sale volume, shadow inventory entering the market, and new GSE
short sale guidelines,
Short sale fraud losses will reach
approximately $325 million this year, representing a $25-million increase over
2011. The increase in short sale fraud losses is due to a projected 10-percent
increase in short sale volume, which is expected to reach a five-year high in
2012. California, Florida and Arizona have the highest rate of suspicious short
sales and account for more than half of all short sales in the U.S.
Nevada, Arizona, Georgia, Michigan
and Florida experienced the highest levels of mortgage fraud risk at the state
level. Chicago is the riskiest city for the second consecutive year followed by
Atlanta; Oakland, Calif.; Orlando, Fla.; and Kissimmee/St. Cloud, Fla.
"Mortgage fraud is a multi-billion dollar
criminal activity that continues to be a critical concern for the mortgage
banking industry. Increased risk and financial loss associated with mortgage
fraud has a direct negative impact on a lender's bottom line," said Susan
Allen, vice president, Product Management for CoreLogic. "Heightened awareness
and analysis of emerging mortgage fraud threats are vital as criminals
continuously look for opportunities to gain an unscrupulous profit at the
expense of the lending community, taxpayers and homeowners."
Going forward, CoreLogic outlines a
number of challenges for the remainder of 2012;
Employment and income fraud risk
challenges will continue, driven by low interest rates and unemployment. Best practices indicate utilization of IRS Form
4506T requesting tax transcripts and both written and later verbal verification
HARP loans continue to represent significant
risk since borrowers typically have less skin in the game due to negative
equity. Fraud prevention measures should
include comparing current income and tax information to hardship affidavits and
performing occupancy verifications.
Distressed sales will continue to be
problematic as their volume increases.
An effective consortium-based Short Sale Monitoring Solution can help
stem the tide of potential losses.