Kroll Factual Data Inc. has announced a 1.1 percent average increase throughout the country of possible fraudulent activity associated with the loan applications processed by the company between the second and third quarters of 2012. In certain metropolitan statistical areas (MSAs) of the country, the increase from the second to third quarter was even more pronounced, rising by more than 50 percent. In the meantime, the federal Consumer Financial Protection Bureau (CFPB) issued new regulations on Jan. 17, 2013, that among other things require lenders to verify borrowers’ financial records and thus ability to repay mortgages.
“While fraud alerts declined in some MSAs,” said Rod Bazzani, president, Kroll Factual Data, “these declines were offset by significant increases in others. This spike in potential fraud is troubling, coming at the same time the mortgage industry is beginning to turn the corner. More importantly, the fact that red flags are rising in every area of the country highlights the continued need for lenders to remain vigilant against fraud. In addition, the new CFPB restrictions—whose ultimate goal is to ensure a borrower can repay a mortgage over its entire term—raise the stakes for lenders to catch fraud or inadvertent errors that might compromise lending decisions or risk buy-back requests.”
Kroll Factual Data examined MSAs with at least 1,000 applications per quarter, and using its proprietary risk analysis and verification engines, isolated certain files that may contain indicators of potential mortgage origination fraud. For example, Flint, Mich., posted the largest quarter-over-quarter increase of potential fraud found within submitted loan applications, with a 50.32 percent increase over last quarter.
Despite the general upward trend of mortgage-related fraud, there were bright spots in Kroll Factual Data’s findings. The MSAs with the largest decreases in potential fraud were Champaign-Urbana, Ill. (-19.55 percent); Bridgeport-Milford, Conn. (-18.59 percent); and San Francisco-Oakland, Calif. (-18.37 percent).