Cases of Fraud on the Rise in Mortgage Industry
As demand from borrowers remains relatively quiet, a concerning trend is emerging in the mortgage industry. New data reveals that cases of fraud among mortgage applicants are increasing at an alarming rate. CoreLogic’s Mortgage Application Fraud Risk Index rose by 8.3% year over year in the second quarter of 2024, with a 1.1% increase from the previous quarter. This upward trend is significant, given the typically stable nature of factors influencing mortgage market risk.
Highlighted Findings:
- In Q2 2024, 0.81% of all mortgage applications contained instances of fraud, with purchase loans showing higher risk levels (0.9%) compared to refinances (0.58%).
- Among different loan types, applications from the U.S. Department of Veterans Affairs (VA) were identified as the lowest-risk, consistent with previous years.
- Multiunit dwellings with two to four units were deemed riskier than single-family properties, with a 3.5% fraud rate on these applications.
- Identity fraud and transaction fraud were the primary categories driving the increase in fraud cases over the past year.
Exploring the Rise in Identity and Transaction Fraud:
- Identity fraud risks have seen consecutive yearly increases, with a 5.5% jump in 2024 and a 12% increase in 2023. This trend is attributed to a growing number of loan programs for foreign nationals with ITINs rather than SSNs, leading to limited confirmatory data.
- Transaction fraud risks have also risen in recent years, up by 4.9% in 2024 and 1.9% in 2023. Factors contributing to this increase include rapid resales at rising prices, more high-activity buyers, and sales transactions with multiple high-risk indicators.
Geographical Trends:
- Fraud activity is most prevalent in states like New York, Florida, California, Connecticut, and New Jersey, with double-digit percentage increases in fraud cases in California (+14.6%), Connecticut (+10.8%), and Florida (10.2%).
Market Insights:
- Lending volumes have remained stable due to persistently high interest rates, with the refinance share of the market holding steady at 24% to 27.5% since 2022.
- While there was a significant shift towards FHA-insured loans in 2023, this trend did not continue in 2024, reflecting the relative stability in loan volumes and transaction types over the past two years.
In conclusion, the aggregated National Mortgage Fraud Index has remained relatively stable, indicating minor fluctuations in loan segments rather than significant shifts in the lending environment. As cases of fraud continue to rise, industry stakeholders must remain vigilant to safeguard the integrity of the mortgage application process and protect both lenders and borrowers.
