Interthinx released its quarterly Mortgage Fraud Risk Report covering data collected in the third quarter of 2011. According to the most recent analysis, employment and income fraud risk is on the rise, up 8.8 percent from third quarter 2010 and up 50 percent from third quarter 2009. Company analysts believe the increase is due to borrower data being misrepresented in order to meet debt-to-income thresholds required by lenders in the face of stagnant or declining real incomes.
Other results uncovered in the most recent report include:
For the sixth consecutive quarter, the two riskiest states are unchanged: Nevada has the highest fraud risk, with an index value of 255; Arizona is next, with an index value of 243. California was the third riskiest state overall, with an index value of 197.
California was particularly well represented in all the indices, containing half of the 10 riskiest metropolitan statistical areas (MSAs), seven of the top 10 ZIP codes, and more than half of the top 10 MSAs in the property valuation and employment/income indices.
Non-geographic risk profiling suggests that fraud risk is greatest in loans with high loan-to-income ratios (the ratio of loan amount to monthly income). In general, all the fraud risk indices increase as the loan-to-income ratio increases, so almost universally, the highest indices occur at loan-to-income values close to or greater than 100.
“We’ve been carefully monitoring the increase in the employment and income fraud risk index for the last two years,” said Mike Zwerner, senior vice president for Interthinx.
The Interthinx Fraud Risk Indices have proven to be a leading indicator of foreclosure activity. Therefore, the regions that currently have high Fraud Risk Indices are likely to continue to experience elevated foreclosure rates going forward. Based on the Fraud Risk Indices, regions that bear close scrutiny going forward include:
- Nevada and Arizona, which continue in first and second positions for the sixth consecutive quarter. No other states have values in excess of 200.
- California, which was the third most risky state overall and contained half of the 10 most risky MSAs as well as seven of the top-10 zip codes.
- The Burlington-South Burlington MSA in Vermont, which has the highest Identity and Employment/Income Fraud Risk Indices, and which placed third in terms of occupancy fraud risk.
- Non-geographic risk profiling suggests that the fraud risk is highest across all indices at high loan-to-income ratios.