Transaction fraud risk that is specific to purchase mortgage applications increased 34.2% year-over-year in the second quarter, a result of the gain in activity for these loans, CoreLogic said.

The company’s annual report takes a more in-depth look at trends in prevalent types of fraud as well as where it is occurring, as opposed to data released in August, which showed a rise in total fraud risk of over 37% in the second quarter compared with the prior year.

“Refinance opportunities that surged lending volumes during the pandemic may be winding down,” Ann Regan, executive, product management at CoreLogic, said in a press release. “The outlook is for fewer low-risk [rate and term] refinances compared to purchases and cash-out refinances, which translates to a higher-risk environment for fraud.”

While one-in-120 applications were estimated to have fraud indicators in the second quarter, for purchases, that pace rose to one in every 90. For refis, it was one-in-169 apps.

In the 2020 report, the overall rate was one-in-164 applications, with one-in-126 for purchases and one-in-200 for refis.

Transaction fraud is defined as a misrepresentation of the nature of the transaction, including undisclosed agreements between the buyers and sellers, falsified down payments, third party risk, non-arm’s length transactions and the use of straw buyers.

Identity fraud risk, which CoreLogic examines only for purchase transactions, had the second largest increase among the six types assessed, at 7.4%.

Occupancy fraud risk increased 5.6%, with refinancing applications seeing a larger rise.

This was followed by undisclosed real estate debt, at an increase of 4.6%. But all of that growth came from refis, which were up 8.7% compared with the prior year; for purchases, this declined by 0.8% over the same period.

While income fraud risk was down 2% from the previous year, CoreLogic attributed that to a large amount of streamlined refis, where lenders do not have to verify the borrower’s earnings.

But when CoreLogic assessed purchases only, income risk increased 1.5%.

The sixth category, property fraud risk, was noted 5.4% less in apps than it was in the year prior.

Meanwhile, the Federal Housing Finance Agency’s lifting of the caps on Fannie Mae and Freddie Mac purchases of investor and second home mortgages, should improve the fraud risk profile for those loans. Increased pricing for these loans increased borrowers’ motivation to commit occupancy fraud.

“Changes in the availability of investment and second home financing may have contributed to higher occupancy risk in 2021, as borrowers sought to avoid the more restrictive policies and worse pricing given to non-primary residences,” Bridget Berg, principal, Fraud Solutions, said in the report.

Fraud risk for two-to-four unit properties runs much faster than the overall rate, at one in every 50 applications.

“The ability to qualify using future income from the property being financed, along with higher loan amounts, makes these attractive targets for fraud schemes,” the report said.

By state, Nevada, with a nearly 45% increase year-over-year, now has the highest mortgage application Fraud Risk Index. New York moved down into the second slot, as the index grew by 14%. Hawaii’s 38% increase vaulted it over Florida into the third position, even though the Sunshine State had its own 31% rise.

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