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Fraud Risk Grows as HELOC Lending Rises


themreport.com | February 1, 2015

By Tory Barringer

As improvements in home values spark a rise in equity lending, analysts are concerned that fast-growing segment of the market is attracting more fraudulent behavior.

Examining mortgage application data processed by its LoanSafe Fraud Manager, property data firm CoreLogic reported this week that both the sources and frequency of mortgage fraud have transitioned from an alarming level after the crisis to a more "normal" state.

There is one exception, however: Home equity lines of credit (HELOCs), which have seen fraud risk rise along with demand for loans over the past year and a half.

That trend comes despite the recent decline in the total number of mortgage applications compared to normal levels.

"When interest rates troughed and then began to rise in late 2012 and early 2013, many of the best-qualified borrowers exited the refinance market. At the same time, increasing home values gave rise to higher levels of home equity, enabling many homeowners ... to purchase a different property, refinance, or obtain a home equity loan," said Xiaolin Tan, staff scientist for CoreLogic, in a blog post for the company. "While this dynamic has been a positive one for many households, the increase in HELOC activity has brought with it a higher level of fraud."

Tan offered as an example multi-lien HELOC fraud, which is an "extremely profitable scam" that takes advantage of the lag time between closing and recording a loan to solicit multiple loans on one property.

While that's just one example, Tan said many more types of HELOC fraud have come to light recently as equity loan volume has increased.

Contrary to that trend, CoreLogic found other types of mortgage application fraud measured in its index have remained largely stable, though performance is varied across loan segments: For example, fraud for both purchase and refinance mortgages with higher loan-to-value ratios has been consistently rising since 2010, while risk across other large segments has been flat or down.

At the state level, Florida remained the riskiest place for mortgage application fraud in the third quarter, keeping its historical spot. Nevada, another state hit hard by the housing crisis and still struggling to recover, ranked second. New York, New Jersey, and Hawaii rounded out the top five.

Meanwhile, Delaware and New York each saw mortgage application fraud risk hit its highest level locally since 2010 in the third quarter.


Back to February 2015 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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