Fraud on the rise in mortgage applications

by Ryan Smith27 Mar 2017

Fraud and misrepresentation in mortgage applications is on the rise, according to new data from First American Financial Corporation.

According to First American’s Loan Application Defect Index, the frequency of defects, fraud and misrepresentation in mortgage applications was up 4.1% month over month in February. It was also up 1.3% year over year, although it was still 25.5% lower than its peak in October of 2013.

The Defect Index for purchase transactions was up 2.4% both month over month and year over year. The refinance defect index rose 3.4% month over month in February, but was down 6.4% from February of 2016.

According to Mark Fleming, chief economist at First American, the recent Fed interest-rate hike, and the resulting upward pressure on rates, tend to push fraud levels upward.

“Defect, fraud and misrepresentation risk continues to respond to the shift in market composition. Rising mortgage rates continue to increase the share of higher risk purchase loan applications, but they are also incenting more borrowers to apply for ARMs,” Fleming said. “The savings for the consumer can be significant, but ARM loan applications have historically had higher defect, misrepresentation and fraud risk,” said Fleming. “The increasing popularity of adjustable rate mortgages is something to keep an eye on as the spring home buying season warms up.”

Wyoming saw the largest year-over-year increase in defect frequency, with defects shooting up by 43.1%. Connecticut saw the largest decrease, with mortgage application defects falling by 9%.

Related stories:
Defects, fraud on the rise in January mortgage apps
Government fraud case against Bank of America officially dead