Real estate sales are booming, but mortgage fraud is becoming more common

New data shows that fraud cases among mortgage applicants are on the rise – a trend that raises eyebrows as demand for borrowers remains muted.

I CoreLogic The Mortgage Application Default Risk Index jumped 8.3% year-over-year in the second quarter of 2024. This represents an increase of 1.1% from the previous quarter. The housing data analysis firm noted that the index “has been growing slowly and has been relatively flat over the past year, which is expected given the small changes in factors that tend to change risk in the mortgage market.”

In Q2 2024, one in 123 of all mortgage applications (0.81%) contained an incident of fraud. Purchase loans (0.9%) had higher levels of risk than refinances (0.58%).

CoreLogic has determined that the lowest risk applications by type of loan are those from US Department of Veterans Affairs (VA), which it called in line with previous years.

When comparing transaction types, multi-unit dwellings with two to four units were considered more dangerous than single-family structures. One in 27 – or 3.5% – of applications involving multi-unit residential properties contained fraud. The risk of fraud in the purchase of these types was increased by 5% compared to the second quarter of 2023.

CoreLogic further noted that of the six types of fraud it measures, identity fraud and employment fraud are the categories that have grown over the past year.

Identity fraud risks have increased for two straight years – jumping 5.5% in 2024 and 12% in 2023. This trend, reports the company, is probably related to the large number of individual foreign loan programs. Tax Identification Numbers (ITIN) rather than Social Security numbers.

“ITIN identity verification data is not as mature as SSN identity, so there is limited information to verify,” CoreLogic said.

Risks of transactional fraud have also increased in successive years, increasing by 4.9% in 2024 and 1.9% in 2023. ,” explained the report. “Characteristics of the job, such as low pay, use of equipment, or non-arm’s-length relationships, may be misrepresented.”

CoreLogic analyzed each state and found that fraud activity is most common in New York, Florida, California, Connecticut and New Jersey. Fraud cases jumped by double-digit percentages from mid-2023 in California (+14.6%), Connecticut (+10.8%) and Florida (10.2%).

Lending rates have remained steady over the past year, which the company blamed on “continuation of high interest rates.” In fact, the share of returns to the market has not decreased since mid-2022, after the issuance of funds. The Federal Reserve started its rate hike campaign, staying in the range of 24% to 27.5%.

In 2023, there was a major business shift away from allowing purchase loans for those insured Federal Housing Administration (FHA). That change did not happen this year.

“The stability in loan volume and activity types over the past two years is reflected in the relative stability of the combined National Mortgage Fraud Index. Index volatility is indicative of small changes in loan components rather than large shifts in the lending environment,” said Josh Wilson, CoreLogic’s principal fraud risk modeler for science and analytics.

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