LexisNexis Risk Solutions, a provider of products and services for addressing client needs in the risk sector, announced the findings of its annual analysis of mortgage fraud in the U.S., revealing that despite improving economic conditions, mortgage fraud is still a national problem.
According to the LexisNexis Annual Mortgage Fraud Report, mortgage application fraud and misrepresentation has grown for the past three years. Seventy-four percent of loans reported in 2013 involved some kind of fraud or misrepresentation on the loan application compared to 69 percent in 2012 and 61 percent in 2011. The LexisNexis Annual Mortgage Fraud Report differs from other studies on the topic, as it seeks to provide information on the composition of proven residential mortgage fraud and misrepresentation by mortgage industry professionals. The analysis is based on data submitted to the LexisNexis Mortgage Industry Data Exchange (MIDEX).
Analysis of the data shows that appraisal and property valuation fraud experienced a significant drop from last year, falling to 15 percent of loans reported with these problems. In 2012, 26 percent of loans reported had signs of appraisal and property valuation fraud following 31 percent in 2011 and 33 percent in 2010. Regulation changes are cited as the reason for this rapid and dramatic decline in appraisal and property valuation fraud.
“When the Home Valuation Code of Conduct (HVCC) went into effect in 2009, lenders could no longer work directly with appraisers,” said Tim Coyle, senior director of financial services at LexisNexis and co-author of the Annual Mortgage Fraud Report. “This landmark regulation, which disrupted the historical appraisal process, has everything to do with the drop in this year’s appraisal fraud. Although no longer in force, HVCC influenced the Appraiser Independence Requirements now found in The Dodd-Frank Wall Street Reform and Consumer Protection Act.”
The report also examined potential collusion fraud. Potential collusion nationwide increased 2.2 percent over last year’s report, reversing what had been a healthy, declining trend. This year Alabama ranks as the top state to have the most potential for collusion.
The report also ranked the states with the most overall mortgage fraud. To rank the states, the LexisNexis Mortgage Fraud Index (MFI) is utilized, which calculates each state’s fraud problem.
For the past five years Florida has topped the list, with an MFI consistently well above 100 — the base number for what would be expected based on its amount of loan originations. Utah moved into the top 10 states with the most reported mortgage fraud involving industry professionals. In four years, Utah has gone from an MFI of 27 to an MFI of 149, which ranks it as the state with the seventh-largest problem of mortgage fraud, right below New York. The top five states on the MFI are Florida (529), Nevada (221), New Jersey (209), Arizona (201), and Illinois (180).