According to the Federal Bureau of Investigation (FBI), mortgage fraud is a deliberate “material misstatement, misrepresentation or omission relating to the property or potential mortgage relied on by an underwater or lender to fund, purchase or insure a loan.” Ethical violations and criminal activity of this nature have affected our entire economy on a national level. However, we have finally received encouraging news on the mortgage fraud front. Fraudulent practices associated with lending have dropped 5.6 percent in the second quarter from a year earlier. CoreLogic has effectively identified 19,700 cases of high-risk fraud in that time period.
Of particular concern, however, are the different schemes that have recently turned up. Those still bent on committing fraud may be reliant on a more dangerous scam. Instead of inflating their home prices, they are now inflating their incomes and assets, according to researchers at CoreLogic.
“There’s no need to inflate the value of the home because home prices are rising,” said CoreLogic’s chief economist Mark Fleming.
It appears as if schemes have shifted as a result of newer federal regulations. Due largely in part to the borrower’s need to prove that they can pay off a loan, fraud is increasingly seen on personal balance sheets. CoreLogic found that 13 percent of fraudulent mortgage applications were from applicants who misrepresented their income. This represents a 7.5 percent jump quarter-over-quarter and the biggest increase among mortgage fraud types.
In response to fraudsters lying about their income, lenders are now forced to conduct extensive checks into financial records.
Lying about income could be much more debilitating to the economy than lying about home prices. Accordingly, increasing home values only causes harm if the prices fall. Conversely, inflating income suggests that borrowers will not ever be able to pay of their loan.
“Since the beginning of 2012, mortgage application fraud risk has totaled more than $30 billion nationally,” says Fleming. “While the propensity toward application fraud risk has declined based on our index, as the housing market recovers, the volume of mortgage applications is rising and increasing the total amount of fraudulent mortgage loan application dollars.”
The following states had the highest year-over-year growth in mortgage fraud risk:
- Ohio (30.1%)
- Hawaii (19.6%)
- Kentucky (16.6%)
- Connecticut (15%)
- Alaska (13.8%)