2014 Annual
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Type-Specific Risks
Interthinx tracks four type-specific fraud risk indices: Property Valuation, Identity, Occupancy and Employment/Income. Figure 5 shows the annual changes in the overall Mortgage Fraud Risk Index and the type-specific indices. Although property valuation risk increased by 17 percent from last year, the overall index was mitigated via decreases in each of the other three risk types resulting in a net reduction of four percent. The Employment/Income Risk Index dropped to 65, a 24 percent decrease from 2013, which can be directly attributed to the positive impact of obtaining tax transcripts to verify income and satisfy regulations adopted by the majority of lenders.
Figure 5: Annual Change in Fraud Risk by Type
PROPERTY VALUATION FRAUD RISK INDEX
Property valuation fraud is perpetrated by manipulating property values. We have observed the intentional over-inflation of values to create false equity, which is then extracted from loan proceeds by various means, but also the compression of value particularly in markets with high levels of foreclosed and real estate owned (REO) properties combined with investor activity. Table 3 lists the Annual Property Valuation Fraud Risk Index for the 25 MSAs with the highest estimated originations in 2014, ranked by origination in descending order. The national Property Valuation Fraud Risk Index in 2014 was 123, up 17 percent from last year.
Table 3: Property Valuation Fraud Risk for MSAs with Highest Estimated Originations 2014
IDENTITY FRAUD RISK INDEX
Identity fraud is a mechanism often observed in various fraud schemes to cloud the true identity of a buyer or seller and thereby hide the identity of the perpetrators and/or to obtain a credit profile that meets lender guidelines. Professional identity theft-stealing the credentials of realtors, appraisers or other participants-may also occur in carrying-out a fraud scheme. Table 4 lists the Annual Identity Fraud Risk Index for the 25 MSAs with the highest estimated originations in 2014, ranked by origination in descending order. The national index for identity fraud risk is 92, down 11 percent from last year.
Table 4: Identity Fraud Risk for MSAs with Highest Estimated Originations 2014
OCCUPANCY FRAUD RISK INDEX
Occupancy fraud is primarily committed by investors who falsely claim the intent to occupy a purchased property to obtain a mortgage with a lower down payment and/or lower interest rate. Table 5 lists the Occupancy Fraud Risk Index for the 25 MSAs with the highest estimated originations in 2014, ranked by origination in descending order. Nationally, the Occupancy Fraud Risk Index is slightly down 2 percent with an index of 132.
Table 5: Occupancy Fraud Risk for MSAs with Highest Estimated Originations 2014
EMPLOYMENT/INCOME FRAUD RISK INDEX
Employment/income fraud occurs when an applicant's income is misrepresented to meet lender underwriting guidelines for a loan. Table 6 lists the Employment/Income Fraud Risk Index for the 25 MSAs with the highest estimated originations in 2014, ranked by origination in descending order. The overall Employment/Income Fraud Risk Index is 65, a 24 percent drop from last year. Los Angeles-Long Beach-Santa Ana California, the MSA with highest estimated origination, ranks as the seventh riskiest MSA with an Employment/Income Fraud Risk Index of 117. We noted earlier in this report that the opportunity for employment/income fraud was greatly mitigated through verification of tax transcripts.
Table 6: Employment/Income Fraud Risk Index with Highest Estimated Originations 2014
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