Rising fraud could follow rising house prices

House price growth is hitting seven-year highs, but the rebounding market may also see a surge in fraud

Rising fraud could follow rising house prices
As house prices see record growth, a surge in fraud may follow, a report has claimed. 
The S&P/Case-Shiller Index has shown a massive uplift in US housing as prices saw their biggest gain in seven years, rising 10.9% in March compared to the same month last year. But the renewed energy in the housing market may come with a dark side.
As prices rise, “there is a tremendous amount of pressure,” on those involved in the housing market to commit fraud, said Al Kohl, manager of litigation and investigation consulting services for McGladrey LLP in Kansas City, Missouri. 
In a report titled “The eight most common mortgage loan origination fraud schemes to watch for today”, Kohl wrote that despite higher regulatory oversight and compliance, economic motivations will continue to push mortgage originators to commit fraud.
Of the most common types of fraud he has investigated on behalf of banks have been inflated income schemes, silent second mortgages, undisclosed side deals with sellers, appraisal schemes, cash-back schemes, undisclosed sources of down payment, forgiven or covered closing costs schemes,  and falsified closing date schemes. 
He added that, as the market improves, it will be “tougher to avoid fraud for originators who are paid based on quotas or commissions.”
Mortgage fraud has in fact increased over 2012, according to a report by Interthinkx, a mortgage risk and loss mitigation analysis firm. Based on an analysis of loan applications processed in 2012, Interthinkx’s mortgage fraud index increased 3.4%, as compared to 2011,  which reflects market stabilization, tightening housing inventory, and home price increases over the last two years.
The report also noted that the majority of mortgage fraud risk has shifted from the West to the East, although Nevada and Arizona still remain the first and third riskiest. Also, the report said that it found loan applications with LTVs of exactly 20% were commonly known to be fraudulent because borrowers would often take out a “silent” second lien with another lender for the down payment.