New statistics from Interthinx revealed last week that mortgage fraud risk was down in the September ending quarter of 2014. However, there are still some areas that need improvement, amid the continuing home price hikes that have priced a lot of consumers out of the mortgage market and also apparently driven fraud risk up in certain parts of the United States.
Interthinx’s analysis of loan applications that had gone through its proprietary fraud detection technology shows that its Mortgage Fraud Risk Index was at 98 in the September 2014 quarter (Q3), down 2 percent from quarter two 2014 and down 9 percent from quarter three 2013. This meshes with a separate set of data from CoreLogic, which also showed a decrease in mortgage application fraud risk across all categories, save for home equity lending.
The findings of Interthinx also showed that there are some states that are especially high risk when it comes to fraud. These states, which include Arizona, California, and Florida, also have “disproportionately higher levels of distressed property sales and investor activity.” Other states that are considered high risk include Connecticut, Illinois, and New Jersey, which have levels of occupancy risk fraud and property valuation fraud risk that are above the national average.
On a broader national basis, he Interthinx Property Valuation Fraud Risk Index was at 122 in quarter three, a decrease of 5 percent quarter-over-quarter, but an increase of 20 percent year-over-year. The Occupancy Risk Index, on the other hand, ticked up 4 percent over quarter two 2014 to 133 in quarter three. This is 10 percent lower on a year-over-year basis.
Interthinx’s analytics also included a metric for employment and income fraud risk, which was down to 59 nationally. California stood out as the riskiest state in this particular category, as it had nine of the ten riskiest metropolitan markets on Interthinx’s report – Fresno led the way with a reading of 133. Boulder, Colorado was the only non-California metro in the top ten, finishing at 123, or 81 percent higher than the June ending quarter of 2014.
Things got interesting when it came to the variables that affected Interthinx’s fraud indices. A more hands-on approach spurred on by 2014’s ability to repay rule had been the main variable driving employment and income fraud down, but the increasing strains on housing affordability was what kept fraud risk high in the aforementioned high-risk markets. “Housing price pressure and home affordability can closely correlate with fraud risk,” said Interthinx president Jeffrey Moyer. “When first time or lower income homebuyers face challenges during the qualification of credit, it can open the door to potential risk factors.”
However, Moyer also noted that fraud was less of a problem in more affordable markets, which may explain why California seemed to be one of the riskiest states in the United States in terms of mortgage fraud. “Conversely, in the most affordable markets—where median income exceeds monthly housing expense, deposits are stronger, and consumer debts are lower, there is less likelihood to misrepresent income and our indices show comparatively lower fraud risk,” continued his statement.