Mortgage application fraud risk rise in 6th straight quarter

Fraud risk from mortgage applications increased in the first quarter on both year-over-year and quarter-over-quarter bases as application volumes for the riskier purchase mortgage increased, according to the National Mortgage Application Fraud Risk Index released by CoreLogic.

The index was at 144 for the first quarter, an increase of 10% from the 132 level in the first quarter of 2017 and up 4% from the 138 level in the fourth quarter. The index has increased for all of the last six consecutive quarters.

An increase in purchase applications, which generally have higher fraud risk compared to refinance applications, contributed to the increase in the index. Purchase applications made up 62% of all transactions in the first quarter, compared to 58% in the first quarter. While purchase volumes were similar to the prior quarter, refinance volumes decreased.

CoreLogic also found that applications included inflated income characteristics more frequently during the quarter. These include relatively high incomes from small employers and incomes that are inconsistent with residence histories. Additionally, it was observed that the share of originations from wholesale channels increased again, reaching 9% of applications, which is an increase of 40% from one year ago.

There was also an increased risk of occupancy misrepresentation during the quarter as shown by multiple indicators. In this type of misrepresentation, loan applicants seek to build rental portfolios under the more favorable lending terms offered to owner-occupants.