Mortgage fraud rising and falling simultaneously
According to CoreLogic’s October MarketPulse report, an interesting thing is happening to mortgage fraud – it is rising and falling at the same time. The mortgage application fraud risk index is down 5.6 percent in the second quarter of 2013 compared to the same time period a year ago.
Yet, CoreLogic reports that while the propensity for mortgage fraud is declining from its peak in 2012, the overall amount is increasing as mortgage loan applications increase.
CoreLogic Chief Economist, Dr. Mark Fleming succinctly describes the situation as “a rising market [that] lifts fraud boats.”
The estimated dollar value of fraudulent applications increases as loan applications and rising application loan amounts increase, even when the index remains unchanged.
“The risk of fraud continues to exist and persist in many markets and the illegitimate gains that can be made on mortgage application fraud make this vice attractive,” Dr. Fleming notes. “While the propensity for fraud is declining from its peak in 2012, the overall amount is increasing as mortgage loan applications increase. An estimated $10.5 billion of fraudulent mortgage applications were submitted to mortgage lenders in the first half of 2013, but diligent underwriting staffs and technology used today likely prevented many of those applications from becoming real loans.”
Meanwhile, equity is shifting
CoreLogic also reports that the bulk of the decline in negative equity has been confined to the first half of this year when home prices increased 10.0 percent.
Additionally, every state’s level of negative equity has declined, with the biggest improvements concentrated in the states with the most home price appreciation.
Deputy Chief Economist Sam Khater explains, “Rapid price improvement in the first half of the year is helping to lift the lid off of many upside-down borrowers, but negative equity remains entrenched for borrowers with junior liens and lower-valued properties.”
Khater forecasts that, “Going forward, we expect prices to increase 6 percent over the next 12 months, which would mean that negative equity should continue to improve, though at a much more moderate pace of roughly 4 to 5 percentage points over the next year.”