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Home | Daily Dose | Valuation Fraud Risk Jumps in First Quarter
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Valuation Fraud Risk Jumps in First Quarter


Risk of fraud in property valuations spiked in the first quarter, according to a report released Wednesday by a risk analytics firm.

Interthinx reported a 1 percent decline in its national Mortgage Fraud Risk Index from the fourth quarter of 2013 to the first quarter of 2014, bringing the index's value down to 100. The index measures fraud trends among loan applications analyzed by the company's fraud detection tool.

Three of the component indices—measuring identity fraud, occupancy fraud, and employment and income fraud—came down over the quarter. The remaining component, property valuation fraud, surged up 27 percent to an index value of 128.

Analysts for Interthinx attribute the increase in valuation fraud risk to a rise in buyers purchasing and listing multiple properties in the same neighborhood.

"By controlling those markets, these persons have the ability to artificially control the price of a property to their advantage," the company said in its report. Another factor in the spike is an increase in properties "being appraised well above traditional valuation thresholds," Interthinx added.

Interthinx president Jeff Moyer called the rise in property valuation risk "troublesome," as "collateral values are a critical element in making sound lending decisions."

"To make lending decisions with increased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing," he said.

In all fraud areas, California remained the riskiest state, bringing a Mortgage Fraud Risk Index of 146. The Golden State also has the dubious distinction of being home to eight of the 10 riskiest metro areas as well as eight of the 10 riskiest ZIP codes.

Also ranking high in fraud risk were the District of Columbia, Florida, Arizona, and Connecticut.

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