Home sales are tepid, but mortgage fraud is becoming increasingly common
New data shows that fraud among mortgage applicants is on the rise – a notable trend as borrower demand remains relatively muted.
The KernLogic Fraud risk index for mortgage applications increased by 8.3% year-on-year in the second quarter of 2024. This included an increase of 1.1% from the previous quarter. The real estate data analytics firm noted that the index has “increased slightly over the past year to flat, which is expected given minimal changes impacting the factors that typically drive evolving risk in the mortgage market.”
In the second quarter of 2024, one in 123 of all mortgage applications (0.81%) contained a case of fraud. Purchase loans (0.9%) had a higher risk level than refinancings (0.58%).
CoreLogic found that the lowest risk applications per loan type were those of the The U.S. Department of Veterans Affairs (VA), calling it consistent with previous years.
When comparing transaction types, multi-unit properties with two to four units were considered riskier than single-family homes. One in 27 (or 3.5%) of applications for multi-unit housing contained fraud. The risk of fraud in these types of purchase transactions was 5% higher than in the second quarter of 2023.
CoreLogic further noted that of the six types of fraud it measures, identity fraud and transaction fraud were the categories that increased over the past year.
Risk factors for identity fraud have increased for the past two years in a row: by 5.5% in 2024 and by 12% in 2023. This trend, the company reports, is likely related to a greater number of loan programs for foreigners with Individual Tax Identification Numbers (ITIN ) instead of social security numbers.
“Identity validation data for ITINs is not yet as mature as for SSN-based identities, so there is limited corroborating information,” CoreLogic said.
The risk of transaction fraud has also increased in recent years, by 4.9% in 2024 and 1.9% in 2023. “These increases were related to the rise in rapid resale with rising prices, more high-activity buyers and multi-flag sales transactions at high risk. ,” the report said. “Elements of the transaction, such as down payments, property use or non-distant relationships, are likely to be misrepresented.”
CoreLogic analyzed each state and found that fraud activity is most prevalent in New York, Florida, California, Connecticut and New Jersey. Fraud rates have increased by double digits since mid-2023 in California (+14.6), Connecticut (+10.8%) and Florida (10.2%).
Lending volumes have remained relatively stable over the past year, which the company linked to “continued high interest rates.” In fact, the refinancing share of the market has barely increased since mid-2022 Federal Reserve started its interest rate hike campaign and remained within a range of 24% to 27.5%.
2023 saw a major shift in business away from conforming purchase loans to those insured by the Federal Housing Administration (FHA). That shift did not take place this year.
“The stability in loan volumes and transaction types over the past two years is reflected in the relatively stable index of the aggregated National Mortgage Fraud Index. Fluctuations in the index are indicative of small changes in loan segments rather than major shifts in the lending environment,” said Josh Wilson, CoreLogic’s principal fraud risk modeler for science and analytics.
