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Mortgage fraud cashing in on hard times

by Broderick Perkins

(11/24/2010) Mortgage fraud is on the rise, up 20 percent since the lowest rates in 2009.

A new report by CoreLogic says lenders are reporting increased levels of fraud as the come-on artists migrate toward higher risk, high volume loan programs, including those offered by the Fair Housing Administration (FHA), Home Affordable Refinance Program (HARP) and short sales and real estate owned (REO) sales.

The mortgage industry had taken steps to curb fraud arising from opportunities for miscreants created by the easy-money era of the housing boom.

But a new wave of fraud is cashing on opportunities created by hard times.

"Despite increased fraud activity during 2010, the industry has made substantial progress in curbing fraud from the levels it reached during the height of the market in 2007. Fraud continues to shift to areas of the lending business where large volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place," said Tim Grace, senior vice president of Fraud Solutions at CoreLogic.

"In fact, during the seven quarters CoreLogic analyzed for this update, fraud risk associated with refinancing grew approximately 30 percent. We also found that REO sales pose a greater risk than short sales, with one in every 24 REO sale transactions associated with a fraudulent resale," Grace added.

CoreLogic used predictive analytics to analyze and issue a fraud score for each of the seven million loans issued from the first quarter of 2005 through the second quarter of 2010.

The peak of mortgage fraud activity was in 2006, at a fraud rate of 109. The data showed fraud reached its lowest point in early 2009 at a fraud rate of 68, but as of the second quarter of 2010, it has increased 20 percent to a fraud rate of 82.

Still well below the peak, mortgage fraud is growing.

CoreLogic found:

• Increased lending through FHA and HARP loan programs accounted for most of the increased risk in 2009 and 2010.

• Second quarter of 2010 had the highest volume of single family resident short sales with nearly 60,000 short-sale transactions.

• REO transaction volume is more than twice that of short sales with 120,000 REO sales in the second quarter of 2010.

• Investment companies are involved in a disproportionately higher percentage of suspicious resales.

• Flipping and flopping hot spots in the U.S. are Southern California, Phoenix, Detroit and Atlanta.

• Lenders have reported that occupancy fraud, employment fraud and undisclosed debt are on the rise.

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