As home values rise and more people want to be homeowners, it’s inevitable, more people will lie and cheat to get a mortgage. Mortgage fraud risk jumped over 12% annually at the end of the second quarter according to Corelogic.
They gauge risk by looking at instances of fraud in identity, occupancy, and income, among other things. The biggest jump, 22%, was in misrepresenting income. Lenders are pretty strict now about how much debt you can carry in relation to income, so people are juicing the numbers.
Also, more investors in the market for renting or flipping means more people claiming they’ll occupy the property when they won’t.
According to Matt Lieberman of Apex Home Loans, “Most people will want to say they’re living in a property because the terms of the loan are going to be better than if they’re buying it as an investment.”
Lieberman says this is the most common type of fraud he sees, but all fraud means more risk for his business when he sells to banks or investors.
“If for some reason they see something that we missed, that we should have caught, they could then force us to buy back the loan,” says Lieberman.
States with the highest rate of fraud risk: New York, New Jersey, Florida, Washington, D.C. and New Mexico. California, the priciest real estate state, ranked ninth.
And fraud is easier than ever to perpetrate, thanks to the internet. A quick search online results in a bevy of sites that will not only generate fake pay stubs but will actually answer phone calls to verify fake information.
The risk isn’t just from borrowers. As interest rates continue to rise, brokers are more desperate for business. This results in brokers who package loans for lenders are also committing more fraud.