Fraud on U.S. mortgage applications has risen to its highest level in more than seven years, according to a new report that details the risks to lenders.
In the second quarter of 2018, one in every 109 mortgage applications contained an indication of fraud, said the report from CoreLogic, an Irvine, Calif.-based data provider. That finding was up from one in every 122 applications in the same period a year earlier.
The report, which includes data from as early as 2010, also indicates that fraud has been on the rise throughout the post-crisis period.
“This year’s trend continues to show an increase in mortgage fraud risk year over year,” Bridget Berg, principal of fraud solutions strategy at CoreLogic, said in a press release Thursday.
She added, “Undisclosed real estate liabilities, credit repair, questionable down payment sources and income falsification are the most likely misrepresentations.”
Mortgage fraud reached epidemic levels before the 2008 crash amid the proliferation of loans that did not require borrowers to document their income. Regulations that were enacted later made it harder to get away with misrepresentations on a mortgage application.
But as home prices and interest rates have risen, prospective borrowers are finding it harder to qualify for a mortgage, and some of them are obscuring the truth.
One factor that appears to be contributing to the increased prevalence of fraud is the reduced number of less-risky transactions, such as those involving homeowners who refinance their existing loans at a lower interest rate.
The report released Thursday found that fraud in which borrowers misrepresent their income rose by 22.1% between the second quarter of 2017 and the same period a year later. Occupancy fraud — involving borrowers who lie about how they plan to use a property — climbed by 3.5%.
The U.S. states where the risk of mortgage application fraud is highest are New York, New Jersey and Florida, according to the report. The metropolitan areas with the highest risks are Miami, Springfield, Mass., and New York.
CoreLogic compiles the report based on data provided by members of a mortgage fraud consortium.
