Fraud and misrepresentation in mortgage applications (mortgage fraud) is on the increase again, according to new data from First American’s Loan Application Defect Index.
The overall Index reveals that the frequency of defects, fraud and misrepresentation in mortgage applications was up 4.1% from January to February in 2017. It was also up 1.3% the same month in 2016. The peak was in October 2013.
Split apart, the Defect Index for (new) purchase transactions was up 2.4% for both month over month and year over year and the refinance defect index grew 3.4% month over month in February, but decreased 6.4% from February of 2016.
Mark Fleming, the chief economist at First American, believes that the recent Fed interest-rate hike, which caused lenders to raise their rates, sent a signal to prospective buyers, some of whom may have submitted loan applications with false or fraudulent information.
“Defect, fraud and misrepresentation risk continues to respond to the shift in market composition. Rising mortgage rates continue to increase the share of higher risk purchase loan applications, but they are also incenting more borrowers to apply for ARMs,” Fleming said. “The savings for the consumer can be significant, but ARM loan applications have historically had higher defect, misrepresentation and fraud risk,” said Fleming. “The increasing popularity of adjustable rate mortgages is something to keep an eye on as the spring home buying season warms up.”
Read the original article in Mortgage Professional America.