Mortgage Fraud Risk Up 12% Since Last Year
In a recent report, CoreLogic found mortgage fraud risk increased 12% since last year. Based on the data, one out of every 109 mortgage applications had indications of fraud ranging from undisclosed real estate liabilities to questionable down payment sources to income falsification.
Bridget Berg, principal of fraud solutions strategy at CoreLogic, explained, “Because home prices are rising, and demand is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage.” States at the highest risk include New York, New Jersey, Florida, Washington DC, and New Mexico.
The biggest driver of mortgage fraud was income falsification, up 22% annually. Loan applicants are using illicit resources online to produce fraudulent pay stubs and even answer calls to verify the information. Some of these services are based out of the country, making them even more difficult to trace.
Occupancy fraud is also on the rise. A borrower financing an owner-occupied property may secure better loan terms than a borrower who intends to rent the property out. This type of fraud becomes more prevalent with house flipping and rental investment on the rise.
Wholesale lenders are especially vulnerable since they rely on borrower information provided by brokers. Mortgage brokers facing shrinking profit margins may be more inclined to falsify borrower information to shop more loans to lenders.
When an investor discovers mortgage fraud, they can ask the lender to buy back the loan. The lender who issued the fraudulent loan may also face steep legal penalties, depending on the circumstances. It’s imperative for lenders to be vigilant and exercise due diligence when reviewing mortgage applications. With the housing market growing increasingly competitive, mortgage fraud is expected to rise as competing home buyers vie over a limited number of homes for sale attempt to cut corners to get approved.