Home values are high, the housing market is competitive, and more buyers want to get in. As a result, an increasing number of buyers are lying and cheating.
Mortgage fraud risk jumped more than 12 percent year over year at the end of the second quarter, according to CoreLogic, which measures six fraud indicators: identity, income, occupancy, property, transaction and undisclosed real estate debt. One in every 109 mortgage applications is estimated to have indications of fraud.
"Because home prices are rising, and demand is strong, most mortgage fraud in this type of market is motivated by bona fide borrowers trying to qualify for a mortgage," said Bridget Berg, principal of fraud solutions strategy for CoreLogic. "Undisclosed real estate liabilities, credit repair, questionable down payment sources and income falsification are the most likely misrepresentations."
Loan applications for real estate purchases are more likely to have fraud than for refinancing, and that may be part of the reason for the increase in overall fraud risk. Because of higher interest rates, refinancing activity has slowed, so the share of purchase applications is higher.
The biggest jump in mortgage fraud risk was due to income reporting, up 22 percent annually. Since the epic housing crash a decade ago, lenders have had very strict limits on the amount of debt a borrower can have compared to his or her income. Some borrowers are therefore juicing their incomes in order to qualify. How? The internet is making it a lot easier.