2015 Mortgage Fraud Report

2015 Mortgage Fraud Report October 2015

Fraud Report National Overview The top 10 states with the highest risk for mortgage fraud have remained stable the past year with notable changes being District of Columbia moving into the top 10 and Rhode Island dropping out along with the major movers of Hawaii moving up and Nevada moving down the list. Florida maintains its position as the nation s highest risk state with New York moving into the 2 nd position from the 3 rd position in 2014. 12,814 Mortgage Applications estimated to have indications of fraud in Q2 2015 During the second quarter of 2015, an estimated 12,814 mortgage applications, or 0.67 percent of all mortgage applications, contained fraud, as compared with the reported 11,100 or 0.69 percent in the second quarter of 2014. MORTGAGE APPLICATION FRAUD RISK INDEX 8.9% from Q2 2014 TO Q2 2015 The CoreLogic Mortgage Application Fraud Risk Index decreased 8.9 percent nationally from the second quarter 2014 to the second quarter of 2015. While the index has seen a year-over-year decrease, it has stabilized, showing a 0.7 percent increase from the first to the second quarter of 2015. The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. CoreLogic develops the index based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager, a predictive scoring technology. The report includes detailed data for six application-fraud indexes that complement the national index: employment, identity, income, occupancy, property, and undisclosed mortgage debt.. reproduced in any form without express written permission. 2

FACTORS AFFECTING FRAUD RISK A number of macroeconomic phenomena affected the mortgage market and mortgage fraud rate during the previous year. Influencing factors include: Interest rates fell from 2013 through April 2015, producing an increase in wellqualified borrowers in the refinance market. Increasing home values have improved home equity, enabling many homeowners with previously marginal equity to purchase a different property, refinance or obtain a home equity loan. Average National Home Equity 45% 40.8% 42.3% 40% 38.0% 35% 30% 29.3% 29.2% 30.4% 25% 20% 2010-Q1 2010-Q2 2010-Q3 2010-Q4 201 1 -Q1 201 1 -Q2 201 1 -Q3 201 1 -Q4 2012- Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 CoreLogic Market Trends data aggregated at a national level. Equity is the value in a property after subtracting all liens or claims against it. Source: CoreLogic 2015 Although overall fraud trends are stable to decreasing for most of the country, some geographies warrant scrutiny. One such area is the Miami CBSA, which ranks atop the CoreLogic fraud list of metropolitan areas. Of particular concern is that house prices in Miami appear to be overheated, as indicated by the CoreLogic Market Condition Indicators. Moreover, house prices in the Miami CBSA have been accelerating at a far greater pace than have rents for single family homes, suggesting that prices may not be a good indicator of sustainable value. This combination of risk factors makes areas like Miami worth paying attention to. Susan Allen, Senior Vice President, Mortgage Analytics at CoreLogic reproduced in any form without express written permission. 3

NATIONAL MORTGAGE FRAUD RISK OVERVIEW National Mortgage Application Fraud Index Over Time 1 125 120 115 110 105 100 95 90 2014-Q3 2014-Q4 2015-Q1 2015-Q2 National Mortgage Application Fraud Index by Loan Segment: Purchase 350 300 250 200 150 100 50 0 2014-Q3 2014-Q4 2015-Q1 2015-Q2 CONFORMING LTV 80 JUMBO LTV 80 LTV 80-100 Source: CoreLogic 2015 1 CORELOGIC Fraud Index has been adjusted to account for quarterly changes in segment volumes. The historical Fraud Index values are slightly different than previous CoreLogic published reports. reproduced in any form without express written permission. 4

NATIONAL MORTGAGE FRAUD RISK OVERVIEW National Mortgage Application Fraud Index by Loan Segment: Refinance 250 200 150 100 50 0 2014-Q3 2014-Q4 2015-Q1 2015-Q2 CONFORMING LTV 80 JUMBO LTV 80 LTV 80-100 Source: CoreLogic 2015 DEFINITIONS The CONFORMING Conforming LTV 80 80 segment consists of applications for owner-occupied mortgages with Loan-To-Value (LTV) less than or equal to 80 percent and a loan JUMBO LTV 80 amount less than or equal to the conforming loan limit. CONFORMING LTV 80 LTV 80-100 The JUMBO Jumbo LTV LTV 80 80 segment contains applications for owner-occupied mortgages CONFORMING with LTV 80less than or equal to 80 percent and a loan amount greater LTV 80-100 than the conforming loan limit. JUMBO LTV 80 The LTV 80-100 segment consists of applications for all mortgages with LTV greater than 80 percent, but less than or equal to 100 percent. reproduced in any form without express written permission. 5

NATIONAL MORTGAGE FRAUD RISK COMPONENTS UNDISCLOSED-DEBT APPLICATION FRAUD RISK 1.7% from Q2 2014 TO Q2 2015 Undisclosed mortgage debt application fraud takes place when a loan applicant intentionally fails to disclose additional mortgage debts during the mortgage origination process. During the second quarter of 2015, this index increased 1.7 percent compared to the same quarter in 2014. From the first to the second quarter of 2015, the debtapplication fraud rate increased 0.8 percent. States with Largest YOY Increase: South Dakota District of Columbia Minnesota North Dakota Nebraska EMPLOYMENT APPLICATION FRAUD RISK 7.0% from Q2 2014 TO Q2 2015 Employment application fraud occurs when an applicant intentionally misrepresents an employer s name, length of employment, position, or other job-related information on a loan application. At the end of the second quarter of 2015, the employment application risk index decreased 7.0 percent when compared to the same quarter in 2014. On a quarter-over-quarter basis, the employment application risk index decreased 1.6 percent. States with Largest YOY Increase: Rhode Island Washington South Dakota Arkansas Maine INCOME APPLICATION FRAUD RISK 7.3% from Q2 2014 TO Q2 2015 Intentionally misrepresenting income on a mortgage loan application results in income application fraud. From the second quarter of 2014 to the second quarter of 2015, the income-application fraud risk index decreased 7.3 percent. The year included two quarters with increasing rates, followed by a slight decrease of 3.1 percent in the final quarter. States with Largest YOY Increase: Wisconsin Oklahoma Idaho Tennessee Vermont reproduced in any form without express written permission. 6

NATIONAL MORTGAGE FRAUD RISK COMPONENTS PROPERTY APPLICATION FRAUD RISK 7.4% from Q2 2014 TO Q2 2015 Property application fraud occurs when the property value is intentionally misrepresented at a higher value than the true market value. From the second quarter of 2014 to the second quarter of 2015, property application fraud risk decreased 7.4 percent nationally. Over the year the trend increased then decreased, with the majority of the decrease occurring from the first to second quarter of 2015 at 13.0 percent. States with Largest YOY Increase: Minnesota District of Columbia Mississippi Hawaii Utah OCCUPANCY APPLICATION FRAUD RISK 17.1% from Q2 2014 TO Q2 2015 Occupancy application fraud occurs when mortgage applicants deliberately misrepresent their intentions to occupy properties to qualify for reduced interest rates, lower down payments, and other incentives. From the second quarter of 2014 to the second quarter of 2015, the occupancy-application fraud risk index decreased 17.1 percent, with a steady quarterly decrease until it flattened from the first to second quarter in 2015, with a 0.1 percent decrease. States with Largest YOY Increase: Vermont Wyoming North Dakota South Dakota Alabama IDENTITY APPLICATION FRAUD RISK 22.7% from Q2 2014 TO Q2 2015 Among the more serious fraud types, identity application fraud occurs when an applicant alters, creates, or uses a stolen identity to obtain a mortgage. The index measuring identity-application risk steadily decreased 22.7 percent from the second quarter of 2014 to the second quarter of 2015, with a 6.3 percent drop on a quarterly basis. States with Largest YOY Increase: South Dakota New York Maine New Hampshire Iowa reproduced in any form without express written permission. 7

NATIONAL MORTGAGE FRAUD RISK COMPONENTS States with Highest Risk by Fraud Component North Dakota ranks in top five for Income, Property, and Occupancy Application Fraud. legend Employment Identity Property Occupancy Income Undisclosed Mortgage Debt Hawaii ranks in top five for Income, Employment, and Undisclosed Mortgage Debt Application Fruad. District of Columbia ranks in top five for Income, Property, and Undisclosed Mortgage Debt Application Fraud. Top five states for each fraud type as of Q2 2015 Source: CoreLogic 2015 Employment Property Income Identity Occupancy Undisclosed Mortgage Debt reproduced in any form without express written permission. 8

MULTI-CLOSING FRAUD RISK Multi-lien fraud is an extremely profitable scam that takes advantage of the lag between closing and recording to solicit multiple loans on a single property. As property values have risen, home equity loan volume has increased, resulting in more home equity line of credit (HELOC) closing schemes, according to findings Multi-Closing Alert Program Yearly SAVE Totals from the CoreLogic Multi-Closing Alert Program (MCAP). Value of Loans Averted Through Multi-Closing Alert Program $30M $25M $25,251,879 $20M $18,092,623 $15M $10M $5M $12,974,559 $5,790,149 $9,049,289 $13,135,359 0 2010 2011 2012 2013 2014 2015 (Annualized) Source: CoreLogic 2015 reproduced in any form without express written permission. 9

MORTGAGE FRAUD RISK HIGHLIGHTS BY STATE Five States with the Highest Year-Over-Year Growth in Application Fraud Risk 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 17.1% 9.1% 7.6% 7.6% 7.5% Louisiana District of Columbia Hawaii Delaware Pennsylvania States with statistically insignificant application volumes are excluded for this analysis. Source: CoreLogic 2015 The trend for previous years is that the highest risk states are the ones that have year-over-year increases in fraud risk. Over the past year the higher risk states have stabilized and the states with lower risk have become the big risk movers. The most notable movement in the top ten states with highest risk are Rhode Island no longer being in the top ten and District of Columbia moving into the top ten. reproduced in any form without express written permission. 10

MORTGAGE FRAUD RISK HIGHLIGHTS BY STATE A breakout of states with high risk growth provides a better look into the ones which are most affected and sheds light on possible causes for the increase. Top Contributors to Year-Over-Year Risk Growth Louisiana District of Columbia Hawaii Delaware Pennsylvania Income Property Income Occupancy Income Employment Occupancy Property Employment Mortgage Debt Five States With the Largest Year-Over-Year Decline in Application Fraud Risk Kansas Indiana Nebraska Connecticut Nevada -32.5% -28.1% -27.3% -25.5% -21.7% reproduced in any form without express written permission. 11

MORTGAGE FRAUD RISK HIGHLIGHTS BY STATE Ten States With the Highest Application Fraud Risk 300 250 200 150 100 50 0 FL NY HI NJ NV DC CA IL MD GA As of Q2 2015 Source: CoreLogic 2015 The highest fraud-risk states - Florida, New York, and Hawaii - have a high level of income misrepresentation and undisclosed mortgage debt. For example, high instances of borrowers that have multiple loans with different lenders and/or a borrower s previous home value or income level does not coincide with the value of the current loan application. reproduced in any form without express written permission. 12

MORTGAGE FRAUD RISK BY GEOGRAPHY Fraud Risk Hotspots Fraud Risk 50 percentile 95+ percentile Source: CoreLogic 2015 The Fraud Risk heat map displays the top 50 percent CBSAs for fraud risk as of Q2 2015. Only CBSAs with a population greater than 50,000 are considered. reproduced in any form without express written permission. 13

MORTGAGE FRAUD RISK BY GEOGRAPHY Unless otherwise noted, all the tables or graphs below are limited to the top 75 Metropolitan areas. Five Metro Areas with the Highest Year-Over-Year Growth in Application Fraud Risk Core-Based Statistical Area Risk Index Fraud Risk Index Change Tulsa, OK 124 54.1% McAllen-Edinburg-Mission, TX 134 44.6% Urban Honolulu, HI 152 35.8% Cleveland-Elyria, OH 98 32.8% Knoxville, TN 76 23.3% Five Metro Areas with the Largest Year-Over-Year Declines in Application Fraud Risk Core-Based Statistical Area Risk Index Fraud Risk Index Change Memphis, TN-MS-AR 138-29.4% Charlotte-Concord-Gastonia, NC-SC 81-29.6% Oklahoma City, OK 112-32.1% Hartford-West Hartford-East Hartford, CT 63-32.3% Bridgeport-Stamford-Norwalk, CT 95-40.5% reproduced in any form without express written permission. 14

MORTGAGE FRAUD RISK BY GEOGRAPHY Twenty Five METRO AREAS WITH THE HIGHEST FRAUD RISK Core-Based Statistical Area Population Risk Index Year-Over- Year 2015 Q2 to 2014 Q2 Quarter- Over- Quarter Q2 to Q1, 2015 Risk Rank Miami-Fort Lauderdale-West Palm Beach, FL 5,929,819 339-9.1% -2.9% 1 Tampa-St. Petersburg-Clearwater, FL 2,915,582 279 10.7% 4.8% 2 Orlando-Kissimmee-Sanford, FL 2,321,418 255-5.4% 10.3% 3 North Port-Sarasota-Bradenton, FL 748,708 206-4.6% -11.8% 4 New York-Newark-Jersey City, NY-NJ-PA 20,092,883 191 4.0% 8.8% 5 Jacksonville, FL 1,419,127 177-4.4% -18.2% 6 Las Vegas-Henderson-Paradise, NV 2,069,681 176-19.5% -6.4% 7 Urban Honolulu, HI 991,788 152 35.8% 82.7% 8 Los Angeles-Long Beach-Anaheim, CA 13,262,220 149-10.2% 2.3% 9 Memphis, TN-MS-AR 1,343,230 138-29.4% 1.9% 10 Oxnard-Thousand Oaks-Ventura, CA 846,178 136-5.4% 2.8% 11 San Diego-Carlsbad, CA 3,263,431 134-1.2% 14.9% 12 McAllen-Edinburg-Mission, TX 831,073 134 44.6% 92.4% 13 Chicago-Naperville-Elgin, IL-IN-WI 9,554,598 134-16.3% -6.0% 14 New Orleans-Metairie, LA 1,251,849 128 13.0% 5.9% 15 San Francisco-Oakland-Hayward, CA 4,594,060 126-17.2% 9.5% 16 Tulsa, OK 969,224 124 54.1% 48.7% 17 Atlanta-Sandy Springs-Roswell, GA 5,614,323 123-22.2% -1.1% 18 Albuquerque, NM 904,587 123-3.3% 3.6% 19 New Haven-Milford, CT 861,277 119-5.8% -9.0% 20 Riverside-San Bernardino-Ontario, CA 4,441,890 117-12.9% 3.7% 21 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 6,051,170 116 2.0% 6.2% 22 Baltimore-Columbia-Towson, MD 2,785,874 116-6.8% 20.8% 23 San Jose-Sunnyvale-Santa Clara, CA 1,952,872 114-26.6% -27.9% 24 Oklahoma City, OK 1,336,767 112-32.1% 16.0% 25 reproduced in any form without express written permission. 15

NATIONAL MORTGAGE FRAUD INDEX METHODOLOGY Comprehensive fraud risk analysis based on the industry s largest lender-driven mortgage fraud consortium and leading predictive-scoring technology The CoreLogic Mortgage Application Fraud Risk Index represents the collective level of CoreLogic identified fraud risk the mortgage industry experienced in each time period, based on the share of loan applications with a high risk of fraud. The CoreLogic index is standardized to a baseline of 100 for the share of high-risk loan applications nationally in the third quarter of 2010. Each one point change in the index represents a one percent change in the share of mortgage applications identified as having a high risk of fraud. In previous reports, the CoreLogic national mortgage fraud index had a static weighted average across indexes computed for various loan segments. The static weighting method ensures that the changes in loan application volume between segments with different fraud characteristics do not spuriously indicate a change in fraud risk patterns. Based on CoreLogic latest research findings, it has been deemed that the national trend is not susceptible to spurious change and the segment weighting has been adjusted quarterly to track market changes. The number of expected fraudulent applications is estimated by applying the rate of applications in the CoreLogic Mortgage Fraud Consortium data with high risk of fraud to the estimated loan application volume in each quarter and geography. Expected fraudulent mortgage applications are defined as having a high risk of fraud based on the CoreLogic LoanSafe Fraud Manager score. CoreLogic Mortgage Fraud Consortium data also provides the average application loan amount by quarter and geography for high-risk fraud scores based on the LoanSafe Fraud Manager score. The average loan amount for applications with a high risk of fraud combined with the number of expected fraudulent applications is used to determine the expected total fraudulent application loan amount by quarter and geography. The application-fraud indexes are based on specific CoreLogic LoanSafe Fraud Manager alerts. These alerts are computed consistently across time for all CoreLogic Mortgage Fraud Consortium members, regardless of whether the client has the alerts enabled or not. Thus, increased firing of an alert indicates increased risk of the corresponding fraud type. Because the CoreLogic Mortgage Application Fraud Risk Index is based on the LoanSafe Fraud Manager score, it provides a more comprehensive and robust indication of fraud trends than would result from simply summing the fraud type indexes. About CoreLogic CoreLogic (NYSE: CLGX) is a leading global property information, analytics and data-enabled services provider. The company s combined data from public, contributory and proprietary sources includes over 3.5 billion records spanning more than 40 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk and related performance information. The markets CoreLogic serves include real estate and mortgage finance, insurance, capital markets, and the public sector. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. Headquartered in Irvine, Calif., CoreLogic operates in North America, Western Europe and Asia Pacific. For more information, please visit www.corelogic.com. CORELOGIC, the CoreLogic logo, and LOANSAFE FRAUD MANAGER are trademarks of CoreLogic, Inc. and/or its subsidiaries. Additional CBSA-level data available by request. Contact For more information, please visit corelogic.com/mortgagefraud, call 415.536.3500 or email tdahl@corelogic.com. october 17-FRDRPT-1015-01 2015 reproduced in any form without express written permission. 16