According to risk mitigation firm Interthink, which released its quarterly Mortgage Fraud Risk Report Wednesday, the national Mortgage Fraud Risk Index value for the first quarter was 100, down 1% from the fourth quarter of 2013. The national Property Fraud Valuation Risk Index, however, was at 128, up 27% from the last quarter and 17% from a year ago.
According to Interthinx, the increase in valuation fraud risk seems to be driven by people in certain areas purchasing multiple properties in the same neighborhood. Such people essentially control the markets in those neighborhoods, and would therefore have the ability to artificially control the price of property to their own advantage. Another contributing factor was the rise in properties “being appraised well above their traditional valuation thresholds,” according to the report.
“This quarter’s report is a reminder that lenders need to be aware of emerging fraud risks. The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions,” said Jeff Moyer, president of Interthinx. “To make lending decisions with increased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing.”
California was the riskiest state for fraud, with a Mortgage Fraud Risk Index of 146. The state contains eight of the 10 riskiest metro areas and eight of the 10 riskiest ZIP codes. Washington, D.C., Florida, Maryland and Arizona were also among the riskiest states.
Mortgage fraud risk was down slightly in the first quarter, but property valuation fraud risk is on the rise, according to data released Wednesday.