Mortgage fraud risk rose this summer, CoreLogic finds

Mortgage fraud risk ticked up this summer when mistakes were more costly because of the high rate, purchase-heavy market, CoreLogic found.

The firm's National Mortgage Fraud Report showed the risk was up 1.6% between the first and second quarter this year, but experienced a 3.1% annual decline. At large, 1 in every 134 mortgage applications between April and June, or 0.75%, had indications of fraud. 

"The current environment makes errors, delays and repurchases more costly," said Bridget Berg, senior leader of Loan Solutions at CoreLogic in a press release. "Ultimately, these factors have spurred many lenders to enact more careful loan screening procedures." 

Those expenses compound already sky-high costs, with lenders at the beginning of the year reporting a loss of almost $2,000 per origination. 

The CoreLogic report shows changes in risk indicator frequencies for types of fraud rather than based on instances of it. The information comes from its LoanSafe Fraud Manager software.

The company's findings add to the industry woes amid historically slow mortgage applications and decades-high mortgage rates heading toward 8%. CoreLogic's risk statistics show more exposure in purchase transactions, with every 1 in 123 applications showing indications of fraud, versus 1 in every 181 refinance applications.

The data also follows a FundingShield report in July showing elevated wire and title fraud risk during the second quarter. 

Fraud rose annually in five of six CoreLogic categories, including double-digit rises in identity fraud (12%) and occupancy risk fraud (11.8%), which the firm tied to investors claiming a property as their primary residence. Income fraud, transaction fraud and property fraud risk saw single-digit year-over-year increases.

The only fraud segment to fall annually was undisclosed real estate debt risk, dropping 17% overall and 21.8% for purchase transactions. The report attributed an expected continual decline to a greater pool of first-time homebuyers. 

New York had the highest mortgage application fraud risk, driven by its rate of riskier 2-4 unit loans, Federal Housing Administration purchases and investment buys, CoreLogic said. The Empire State was followed by Florida, Connecticut, California and New Jersey, which were exposed to similar factors including higher rates of jumbo loans. 

Massachusetts saw the largest year-over-year increase of fraud risk due to its concentration of 2-to-4 unit loans, five times the national average, the report found. 

Home loans backed by the Department of Veterans Affairs are traditionally safe, CoreLogic noted, and the lowest risk of mortgage application fraud.