Fraud fears elevated

Originators beware: risk of mortgage fraud is on the rise, according to a new report

Fraud fears elevated
Originators beware: the risk of mortgage fraud is on the rise, according to a new report.

“We reported that for the first time in 2017 the Loan Application Defect Index didn’t rise (in August), but we advised caution in interpreting the one-month trend,” Mark Fleming, chief economist at First American, said. “In August, the overall risk of defects, fraud and misrepresentation again didn’t change. It’s a positive sign that loan application risk has remained stable for two consecutive months, but given the recent high-profile data breaches that exposed the personal credit information of many U.S. consumers, the risk of identity-based fraud and misrepresentation is certainly elevated.”

That’s an unsurprising take consider the current controversy surrounding Equifax and its well-reported data breach.

Earlier this week, the credit agency announced the results of an independent investigation which was conducted by Mandiant, into the breach.

It was revealed that about 145.5 million consumers have been potentially impacted by the breach – slightly higher than the previously estimated 143 million.

“Mandiant did not identify any evidence of additional or new attacker activity or any access to new databases or tables,” Equifax said Monday. “Instead, this additional population of consumers was confirmed during Mandiant’s completion of the remaining investigative tasks and quality assurance procedures built into the investigative process.”

The industry is now on high alert, to be sure.

First American publishes a monthly loan application default index, which estimates the frequency of defects and fraud in mortgage loan applications.

August’s index increased 20% year-over-year and is expected to potentially rise due to Equifax’s breach as well as recent natural disasters.

“The devastating impact of Hurricanes Harvey and Irma on large parts of Texas and most of Florida continues to be assessed. Thankfully, recovery efforts are well underway and the rebuilding of homes has started,” Fleming said. “Yet, it should come as no surprise that in the wake of major natural disasters the risk of mortgage loan application fraud increases.

“Evidence from monitoring application defect, misrepresentation and fraud risk after Sandy in the New York metropolitan area indicates that one should be on the lookout for increased risk in the markets impacted Harvey and Irma.”