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Interthinx Report Finds Fraud for Housing As Much of a Problem as Fraud for Profit

Mar 28, 2011

Interthinx has released its annual Mortgage Fraud Risk Report, which highlights some of the most significant mortgage fraud risk trends based on analysis of loan applications processed in 2010 by the Interthinx FraudGUARD system. Updated quarterly, Interthinx Mortgage Fraud Risk Reports provide insight into current fraud trends through analysis of the extensive pool of data the company amasses from the industry’s use of the Interthinx FraudGUARD loan-level fraud detection tool. According to the report: Overall mortgage fraud risk is highest in areas with high levels of foreclosure activity; criminals may be migrating to those areas; and frauds “for property” (that is, fraud for homeownership) must be identified and addressed going forward with the same urgency as frauds “for profit.” More detailed points highlighted by Interthinx analysts include: ►The states with the highest overall levels of mortgage fraud risk corresponded closely to the states with the highest levels of foreclosure activity and underwater borrowers. The strong correlation between mortgage fraud risk and foreclosure activity is consistent with the increase in fraud schemes that seek to take advantage of opportunities presented in distressed markets, such as “flopping” (deflating short sale values to generate a profit margin on a subsequent flip at an increased value) and foreclosure rescue-related schemes. ►As of fourth-quarter 2009, fraud risk levels in Nevada and California were nearly identical with California’s overall risk index value at 222 and Nevada’s value at 220. However, during 2010, their risks diverged, with Nevada’s overall risk index value increasing to 255, while California’s decreased to 180. This may be due to a migration of fraudsters seeking to take advantage of the more fertile grounds for fraud in Nevada, where the proportion of foreclosure and distressed sales is by far the highest in the nation. ►The Employment/Income and Identity Fraud Risk Indices both rose by nearly 30 percent over the last year, which may indicate that the incidence of so-called “fraud for property” is on the increase. ►Overall risk in the Chicago metropolitan statistical area increased dramatically in 2010, rising from 134 in fourth-quarter 2009 to 185 in fourth-quarter 2010. The increase in risk seems to have originated and spread from ZIP code 60621, which at the end of 2009 was the only ZIP code in Chicago with an index value in excess of 375.This localized risk spread throughout the metropolitan area during 2010 to the extent that by fourth-quarter 2010, numerous Chicago ZIP codes had index values greater than 375. Moreover, four of the 20 riskiest ZIP codes nationwide in 2010 were located in Chicago. “As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” said Kevin Coop, president of Interthinx. “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them. Most disturbing is the link between foreclosure activity and mortgage fraud. It’s critical that we, as an industry, tirelessly keep our guard up and think as creatively as the criminals. To do that, lenders need the best business intelligence available, and I’m very proud that our quarterly report has become an essential tool in their mortgage fraud risk mitigation efforts.” The full Mortgage Fraud Risk Report is an Interthinx information product created by an internal team of fraud experts. The report was prepared with input from Constance Wilson, Ann Fulmer, Shane De Zilwa, and the Interthinx analytics team.
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Published
Mar 28, 2011
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