Where Mortgage Application Fraud is on the Rise

As the housing market turns a corner and starts to pick up speed, mortgage application fraud has also increased. The national average only went up by 1.1%, but some metro areas saw increases by as much as 50%.

Whenever something is doing well, there will undoubtedly be people looking to take advantage. As the housing market turns a corner and starts to pick up speed, mortgage application fraud has also increased, which could spook lenders into tightening up.

A new report revealed that mortgage fraud went up by 1.1% from the second quarter to the third quarter in 2012. True, 1.1% might not sound like much, but in some metropolitan areas, mortgage fraud was up by more than 15%, according to Kroll Factual Data, provider of risk mitigation and verification services to mortgage lenders, banks and credit unions. In fact, one unfortunate area reported fraud increased by 50% quarter to quarter.

“While fraud alerts declined in some [metropolitan statistical areas], these declines were offset by significant increases in others,” Rod Bazzani, president of Kroll Factual Data, said in a statement. “This spike in potential fraud is troubling, coming at the same time the mortgage industry is beginning to turn the corner.”

The federal Consumer Financial Protection Bureau issued new regulations on Jan. 17, 2013, requiring that lenders verify a borrower’s financial records, and therefore, his or her ability to actually repay the mortgage.

“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,” Bazzani said.

Some cities did see large declines in potential for fraud, but the 19.55% decrease in Champaign-Urbana, Ill., and the 18.59% drop in Bridgeport-Milford, Conn., simply weren’t enough to offset the huge increases.

Kroll examined mortgage applications in the country’s metropolitan statistical areas and identified the 10 areas with the largest quarter over quarter increase of potential fraud.

10. Appleton-Oshkosh-Neenah, Wis.

Quarter over quarter increase: 17.10%

9. Providence-Fall River-Warwick, R.I.-Mass.

Quarter over quarter increase: 18.04%

8. Fort Worth, Texas

Quarter over quarter increase: 20.41%

7. Omaha, Neb.-Iowa

Quarter over quarter increase: 22.43%

6. Des Moines, Iowa

Quarter over quarter increase: 23.95%

5. Santa Fe, N.M.

Quarter over quarter increase: 24.24%

4. Tacoma, Wash.

Quarter over quarter increase: 25.68%

3. Lancaster, Pa.

Quarter over quarter increase: 28.83%

2. Columbia, Mo.

Quarter over quarter increase: 29.77%

1. Flint, Mich.

Quarter over quarter increase: 50.32%