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Occupancy Fraud Risk on Increase

Sorohan, Mike
Interthinx, Agoura Hills, Calif., said its quarterly National Mortgage Fraud Index showed occupancy fraud risk increased by 15 percent over the past year, while the overall risk index in the first quarter rose by 1 percent.

The report said occupancy fraud--characterized as perpetrated primarily by investors who falsely claim the intent to occupy a purchased property in order to obtain a mortgage with a lower down payment and/or lower interest rate--rose by 15 percent, consistent with continuing investor appetite for rental properties. McAllen, Texas is the riskiest Metropolitan Statistical Area for occupancy fraud risk this quarter, with an index of 217; by contrast, the national index value stands at 115.

Florida MSAs had five of the top 10 riskiest areas for occupancy fraud: Cape Coral-Fort Myers (2nd at 207); Panama City-Lynn Haven-Panama City Beach (3rd at 199); Miami-Fort Lauderdale-Pompano Beach (4th at 193); Port St. Lucie (7th at 177); and Pensacola-Ferry Pass-Brent (10th at 168). Provo-Orem Utah (5th at 183), Stockton (6th at 180) and Riverside-San Bernardino-Ontario, Calif., (8th at 176) and Las Vegas-Paradise, Nev. (9th at 169) round out the 10 riskiest.

“Loan purpose is a pivotal factor in occupancy fraud risk,” said Interthinx President Jeff Moyer. “The higher occupancy fraud risk in purchases will become increasingly significant as the mortgage market changes in the coming months from a refinance-dominated market to a purchase-dominated market.”

The national Mortgage Fraud Risk Index for rose to 100, a 1 percent increase from last quarter and unchanged from a year ago. California remained the riskiest state with a mortgage fraud risk index of 125, followed by Nevada (124), Florida (119), the District of Columbia (115) and Alaska (113). The least-risky state was Mississippi (53).

In addition to being the riskiest state, California includes four of the top 10 riskiest ZIP codes and five of the top 10 riskiest MSAs, including the riskiest, Santa Barbara-Santa Maria-Goleta (139). Additionally, nine of the top 10 riskiest MSAs for Employment/Income Fraud Risk ranked in California.

Other MSAs ranked as riskiest include St. George, Utah (139); Cape Coral, Fla. (138); Fayetteville, Ark. (138); and Vallejo, Calif. (136). The U.S. average was 100. All of the MSAs in the top 10 had an index value at least 30 percent higher than the national index value.

The report also noted four of the top 10 riskiest ZIPs in the country concentrate in Chicago, with 60640 ranked riskiest with an index of 439, along with 60610 (3rd at 279), 60202 (5th at 259) and 60639 (7th at 255). Four ZIPs from California and one each from Michigan and Virginia round out the top 10.

Purchases have a higher fraud risk than refinances, the report said, primarily driven by a much-higher Occupancy Fraud Risk; the Occupancy Fraud Risk Index for purchases was 176 compared with 76 for refinances. Ashley Woodworth, Interthinx vice president of business development and corporate strategy, said the mortgage market is expected to change from a refinance-dominated market to a purchase dominated-market in the coming months.

“Although occupancy fraud risk is up nationwide, different areas of the country are at risk for different types of fraud risk,” Woodworth said. “With the continuing trend for mortgage fraud to ‘head east,’ states like Illinois and Ohio have shown increases in property valuation fraud risk.”

The report also said employment/income fraud--when an applicant's income is misrepresented in order to meet underwriting guidelines for a loan also ranked high in fraud instances in the first quarter. California--which has the third-highest unemployment rate in the nation (9.4 percent)--dominated the list with nine MSAs, led by Vallejo-Fairfield with an index value of 183, a 44 percent increase from one year ago and a 63 percent increase from last quarter. Each MSA on this list had an Employment/Income Fraud Risk Index at least 40 percent higher than the national average of 90.

The report can be accessed at