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LexisNexis® Risk Solutions Releases Annual Mortgage Fraud Report

Appraisal and property valuation fraud hits five-year low; application fraud and misrepresentation soars

12/12/2014

ATLANTA – Today LexisNexis® Risk Solutions 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. In fact, 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,” explained Tim Coyle, Senior Director, Financial Services, 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 Although no longer in force, HVCC influenced the Appraiser Independence Requirements now found in The Dodd-Frank Wall Street Reform and Consumer Protection Act.”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 examines potential collusion fraud. Potential collusion nationwide increased 2.2 percent over last year’s report, reversing what had been a healthy, declining trend. To understand collusion the LexisNexis Collusion Indicator Index (CII) was created, which enables the mortgage industry to better pinpoint areas of potential collusion among buyers and sellers. The CII ranks the states where the most potential for collusion exists. This year Alabama ranks as the top state to have the most potential for collusion.

It is also important to understand the states with the most overall mortgage fraud.  To rank the states, the LexisNexis Mortgage Fraud Index1 (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—what would be expected based on its amount of loan originations. Surprisingly, Utah jumps 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, meaning very little mortgage fraud as compared to its mortgage originations, to an MFI of 149, which ranks it as the state with the seventh largest problem of mortgage fraud, right below New York.

Below is a ranking of the top five states with the highest incidents of mortgage fraud:

STATE

2013 Rank

2013 MFI

2012 Rank

2012 MFI

Florida

1

529

1

698

Nevada

2

221

2

232

New Jersey

3

209

6

130

Arizona

4

201

5

144

Illinois

5

180

4

156

“In the U.S., fraud across all industries is close to a trillion dollar problem,” said Coyle. “The results of this study clearly demonstrate that the mortgage industry, like other industries, is making progress in combating fraud in some areas, such as appraisal fraud, but still has a lot of work to do in other areas, such as misrepresentation on credit documentation, which leapt from five percent in 2012 to 17 percent in 2013.”

About LexisNexis Risk Solutions
LexisNexis Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX Group (LSE: REL/NYSE: RELX), a global provider of information and analytics for professional and business customers across industries. RELX is a FTSE 100 company and is based in London. For more information, please visit www.risk.lexisnexis.com and www.relx.com.

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