Refi Boom Helps to Slow Application Fraud

The incidence of mortgage application fraud declined in the second quarter according to CoreLogic.  The company's Quarterly Mortgage Fraud Risk Index fell from 152 in the first quarter to 132 and is 11.4 percent lower than the 149 reading in the second quarter of last year. The company said the reason for the change however is not because of an increase in lender vigilance, or borrower ethics for that matter, but rather a function of interest rates. 

CoreLogic says the fraud rate, which has been stable for a year, was a result of a surge in application volume due to the decline in interest rates.  In other words, the fraud fish is swimming in a bigger pool.

The change in fraud rates was most evident in refinancing which increased from a 32 percent share of applications in the first quarter to 35.5 percent in the second.  Risk levels within every refinance segment declined anywhere from 12 to 30 percent.  "The swell in refinances and that fact that these additional refinances were rate-driven, which tend to be lower-risk, is what impacted the fraud risk score positively," according to CoreLogic's Quarterly Fraud Insight Brief.

Meanwhile the risk within purchase segments was largely unchanged from prior quarters. As they represent a smaller overall segment of the market, the effect on the index was minimal.

Although it declined by 24 percent quarter-over-quarter, the Miami/Fr. Lauderdale/West Palm Beach area still has the highest fraud risk, followed by New York/Newark/Jersey City and McAllen, Texas. 

Most of the 15 metro areas tracked by CoreLogic had lower risk index numbers than in the first quarter but the index jumped by 61 percent in the Albany/Schenectady/Troy metro.  CoreLogic said that area did not have any of the signs of the refinance surge that was present in most of the country, rather purchases accounted for 82 percent of transactions (versus 64.5 percent nationally) and the area also had a higher share of low-down payment purchases.  High closing costs in New York may have made refinancing less beneficial in the area.