Mortgage Fraud Trends: Rising Risk and Lender Technology

Mortgage Fraud Risk Overview

• 📈 Mortgage fraud risk is slightly rising but remains at a very low level nationally.
• 💡 In Q2, mortgage application fraud increased just over 6% year-over-year, moving the share of fraud from 0.81% to 0.86% of all applications.

Detection and Prosecution Challenges

• 🔍 Lenders are catching fraud more often due to advancements in technology.
• ⚠️ Many fraud cases are not prosecuted because lenders deem it not worth the time and money, opting instead to deal with the repercussions of bad loans.
• 📊 Last year, there were over 3,100 reports of potential mortgage origination fraud from Fannie Mae and Freddie Mac alone, yet only 38 individuals were sentenced for mortgage fraud.

Common Fraud Scenarios

• 🏠 The most common fraud is seen in mortgages for two to four-family buildings, where buyers falsely claim owner-occupancy for one unit while renting out others.
• 💰 This is driven by the difference in mortgage rates between owner-occupants and investors, which is influenced by the down payment size.
• 📉 Fannie Mae recently lowered the minimum down payment for these buildings from 25% to 5%, which may contribute to the observed increase in this type of fraud.

Post-COVID Mobility and Fraud

• ❓ While there was increased mobility post-COVID, it's difficult to directly link this to occupancy fraud due to the small base numbers and lack of specific data.
• 🏠 The trend of people moving does not necessarily equate to faked occupancy claims.