Mortgage Fraud on the Rise, Short Sale Fraud Expected to Increase
By: Krista Franks Brock
After remaining relatively flat for about a year, mortgage fraud is on the rise again, according to CoreLogic. The firm’s fraud index estimated about $12 billion in fraudulent originations over the year last year but anticipates about $13 billion in mortgage fraud by the end of 2012.
All categories of mortgage fraud increased year-over-year in the first quarter of 2012, with employment fraud taking the lead with a 50 percent increase. CoreLogic attributes this rise to continued high levels of unemployment across the nation combined with low mortgage rates, incentivizing homeowners to misrepresent their employment status on loan applications.
Identity fraud followed employment fraud with a 44 percent increase year-over-year. Income fraud increased 35 percent; occupancy fraud rose by 25 percent; and undisclosed debt fraud increased by the smallest amount, 8 percent over the year.
In contrast to CoreLogic’s report of steady origination fraud in 2011, the Financial Crimes Enforcement Network (FinCEN), which tracks suspicious activity reports (SARs), notes mortgage SARs “increased significantly” in both 2010 and 2011.
FinCEN also reports a 31 percent decrease in SARs reported in the first quarter of 2012 when compared to the first quarter of 2011. However, SARs have risen about 10 percent over the year in 2012.
“This upward spike in mortgage fraud counts, according to FinCEN, is largely attributable to mortgage repurchase demands and special filings generated by several institutions,” CoreLogic notes.
Mortgage SARs may not be recorded until well after the suspicious act was committed.
In an environment of continually increasing distressed sales, CoreLogic sees heightened risk for fraud, especially among short sales. “CoreLogic research indicates that the mortgage industry is likely to originate $325 million resulting from short sale fraud in 2012,” the firm states in its report.
Ed Gerding, senior fraud strategist for CoreLogic, explains the $325 million is “the dollar amount of loss that will be incurred” from short sale fraud.
As an example, Gerding says that if a lender does a short sale for $100,000 and a resale occurs shortly after the short sale for $125,000, the $25,000 would be the potential incurred loss by the lender.
CoreLogic also warns servicers to remain vigilant as “HARP 2.0 and HAMP loans continue to represent significant risk.”
During the first quarter of this year, Nevada ranked as the top riskiest state in the nation, according to CoreLogic. Nevada was followed by Arizona, Georgia, Michigan, and Florida.
Among ZIP codes, Chicago took the No. 1 spot for the quarter. Oakland, California, took the No. 2 spot, followed by Atlanta; Orlando, Florida; and the Orlando-Kissimmee area, also in Florida.
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