Loan Defects, Fraud and Misrepresentation Activity Rising in 2018

Multiple mortgage industry publications and reports have noted a spike in the frequency of defects, fraud, and misrepresentation in the information submitted in mortgage loan applications over the first quarter of 2018. These reports come after Fannie Mae released its 2017 Mortgage Fraud Trends report which announced a steep increase in 2nd and 3rd Qtr. 2017 fraud tips and a doubling of fraud tips received in 4th Qtr. 2017 over the 1st Qtr. 2017. Fannie Mae reports that Forgery was the top fraud tip they received followed by Occupancy, ID Theft, Liabilities Fraud with Credit Fraud closing out the top 5.

The states identified by Fannie Mae as being those most at risk of fraud are:

  1. California
  2. Florida
  3. New York
  4. Texas
  5. Illinois
  6. New Jersey
  7. Pennsylvania
  8. Georgia
  9. Maryland
  10. Washington

The Servion Group, a mortgage services provider based in Minnesota, reports in their March 2018 Servion Mortgage Newsletter that they have seen an uptick in the incidence of Occupancy and Undisclosed Debt misrepresentations. The newsletter offers useful tips for educating borrowers about the importance of occupying their new home within 60 days of closing and avoiding taking on any new debt before closing. In addition, it also stresses the importance of educating borrowers about the legal consequences and financial impact such misrepresentations can have on them and their lender/investor.

According to the First American Loan Application Defect Index for February 2018, First American reports that although the frequency of defects, fraud and misrepresentation remained the same as in December 2017, the year on year results over January 2018 showed a large increase in the incidence rate of 13.7%. The report highlights South Dakota, New Mexico, Wyoming, Oregon and Ohio as the 5 states seeing the biggest year-over-year increases from 23.1% in OH to 39.7% in SD. The report highlights the uptick in defect frequency in purchase transactions during January and the previous year.

If you are seeing an increase in loan defects, fraud and/or misrepresentation activity in your loan applications, and/or would like to discuss ways in which AMLG can assist you with dealing with fraud and misrepresentations, please contact AMLG Chairman Arthur Prieston.