Mortgage Fraud Increases as Market Shifts to Purchases

A shift to a purchase-dominated origination market from strong refinance business has pushed fraud risk to its highest level since early 2019, according to CoreLogic’s latest report.

The probability of application fraud jumped 10.5% during the second quarter compared to the same period a year ago. The year-over-year increase is 37.2% annually. The index is at nearly the same level it was in Q2 2019, which was 131. At the height of the pandemic refi boom Q2 2020, it had dropped to 96 due to the influx of low-risk rate/term refinances. The rise back to 132 for Q2 2021 is on the historically high end of the index, but CoreLogic that it “is not cause for great concern.”

The report said the shift in volume toward purchase loans is reflected in the increased risk indicated by the national index. According to the latest ICE Mortgage Technology’s latest Origination Insight Report (OIR), purchases represented a higher percentage of closings than refinances for the first time since December 2019. According to the report, purchases rose to 51% of closed mortgage loans in June, up from 47% in the month prior. Conversely, refinances represented 48% of closed loans, down from 52% the month prior. The remaining 1% of closed loans were for other purposes.

One area to watch is occupancy fraud, according to the report. As the GSEs limit financing availability for non-primary occupancy, it seems quite likely to increase motivation for occupancy misrepresentation, already one of the most common mortgage fraud risks.

CoreLogic reported the top five states for fraud risk are Nevada, New York, Hawaii, Florida and California. All of these states showed risk increases quarter-over-quarter.

Source: CoreLogic