Home sales are tepid, but mortgage fraud is becoming more common

CoreLogics-quarterly-fraud-risk-report
CoreLogic’s risk index rose 8.3% in the past year, driven by more cases of identity and transaction fraud

New data shows that cases of fraud among mortgage applicants is on the rise — an eye-raising trend as demand from borrowers remains relatively quiet.

The CoreLogic Mortgage Application Fraud Risk Index jumped by 8.3% year over year in the second quarter of 2024. This included a 1.1% increase from the prior quarter. The real estate data analysis firm noted that the index “has been slightly increasing to flat over the last year, which is expected given the minimal changes affecting the factors that typically drive changing risk in mortgage market.”

In Q2 2024, one in 123 of all mortgage applications (0.81%) contained an instance of fraud. Purchase loans (0.9%) had higher levels of risk than refinances (0.58%).

CoreLogic determined that the lowest-risk applications by loan type were those from the U.S. Department of Veterans Affairs (VA), which it called consistent with prior years.

When comparing transaction types, multiunit dwellings with two to four units were deemed riskier than single-family properties. One in 27 — or 3.5% — of applications involving multiunit dwellings contained fraud. The risk of fraud on purchase transactions of these types was up 5% compared to second-quarter 2023.

CoreLogic went on to note that of the six types of fraud it measures, identity fraud and transaction fraud were the categories that increased over the past year.

The risk factors for identity fraud increased have increased for two straight years — jumping by 5.5% in 2024 and by 12% in 2023. This trend, the company reported, is likely tied to a greater number of loan programs for foreign nationals who have Individual Tax Identification Numbers (ITIN) rather than Social Security numbers.

“Identity validation data for ITINs is not as mature as for SSN-based identities, so there is limited confirmatory information,” CoreLogic stated.

Transaction fraud risks have also increased in consecutive years, up 4.9% in 2024 and 1.9% in 2023. “These increases were tied to upticks in rapid resales with rising prices, more high-activity buyers, and sales transactions with multiple high-risk flags,” the report explained. “Elements of the transaction, such as down payment, property use, or non-arms-length relationships, are more likely to be misrepresented.”

CoreLogic analyzed each state and found that fraud activity is most prevalent in New York, Florida, California, Connecticut and New Jersey. Fraud cases have jumped by double-digit percentages since mid-2023 in California (+14.6), Connecticut (+10.8%) and Florida (10.2%).

Lending volumes remained relatively steady over the past year, which the firm tied to “continued high interest rates.” In fact, the refinance share of the market has barely budged since mid-2022, after the Federal Reserve began its rate-raising campaign, staying within a range of 24% to 27.5%.

In 2023, there was a large shift of business away from conforming purchase loans to those insured by the Federal Housing Administration (FHA). That shift did not occur this year.

“The stability in the volumes of loans as well as the types of transactions over the last two years is reflected in the relatively steadiness of the aggregated National Mortgage Fraud Index. Fluctuations in the index are indicative of small changes in loan segments rather than large shifts in the lending environment,” said Josh Wilson, CoreLogic’s primary fraud risk modeler for science and analytics.

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