Home Sales Are Tepid, But Mortgage Fraud Is Becoming More Common

In recent months, the real estate market has experienced a slowdown, but an alarming trend is emerging: mortgage fraud is on the rise. According to CoreLogic's latest Mortgage Application Fraud Risk Index, fraud cases among mortgage applicants increased by 8.3% in the second quarter of 2024, indicating a growing concern for borrowers and lenders alike.

Rising Fraud Risks Amidst a Quiet Market

While demand for home loans remains relatively stagnant, the incidence of fraud is notably increasing. The CoreLogic report highlighted a 1.1% increase in fraud from the previous quarter, indicating that the overall risk landscape for mortgage applications is becoming more precarious. In Q2 2024, 1 in 123 mortgage applications—equating to 0.81%—contained fraudulent activity. Interestingly, purchase loans showed a higher risk of fraud at 0.9% compared to refinance loans, which stood at 0.58%. This trend emphasizes the importance of vigilance for both buyers and lenders in this challenging environment.

Understanding the Types of Fraud

CoreLogic identified that the types of loans with the lowest risk of fraud were those backed by the U.S. Department of Veterans Affairs (VA), a trend consistent with previous years. However, when examining transaction types, it was revealed that applications for multi-unit dwellings (two to four units) posed a higher risk. Approximately 3.5% of these applications were flagged for fraud, which was a 5% increase from Q2 2023.

Identity and Transaction Fraud on the Rise

The report specifically noted that two categories of fraud—identity fraud and transaction fraud—have shown significant increases over the past year. Identity fraud risks have climbed by 5.5% in 2024, following a 12% jump in 2023. This may be linked to the growing number of loan programs for foreign nationals using Individual Tax Identification Numbers (ITINs) instead of Social Security numbers (SSNs). Transaction fraud risks have also surged, up 4.9% in 2024 and 1.9% in 2023. This rise correlates with increased rapid resales, more active buyers, and sales transactions flagged with multiple high-risk indicators. Misrepresentations involving down payments, property use, or non-arms-length relationships are now more common.

Where Is Fraud Most Prevalent?

CoreLogic's analysis revealed that fraud is most frequently seen in states like New York, Florida, California, Connecticut, and New Jersey. Since mid-2023, fraud cases have spiked significantly in California (14.6%), Connecticut (10.8%), and Florida (10.2%).

Steady Lending Volumes Despite Rising Fraud

Despite these troubling fraud trends, lending volumes have remained relatively stable, a phenomenon attributed to consistently high interest rates. The share of refinance transactions has not changed dramatically since mid-2022, fluctuating between 24% to 27.5%. Notably, there has been a marked shift from conforming purchase loans to those insured by the Federal Housing Administration (FHA) in the past year.

Protecting Yourself in a Risky Environment

As mortgage fraud continues to increase, it is vital for originators to remain vigilant and informed. At Innovative Mortgage, we understand the importance of preventing mortgage fraud and securing your financial future. That's why we take a robust approach to quality control. We're in this for the long run. Stay informed and empowered as you navigate your mortgage journey with Innovative Mortgage!