A recalibration in the way CoreLogic calculates mortgage fraud risk led to a large year-over-year decrease in this metric at the end of the second quarter, the analytics company announced.
CoreLogic’s 2022 Mortgage Fraud Report revealed that fraud risk was down 7.5% annually during the second quarter. One in 131 mortgage applications were estimated to have fraud indications during these three months, equating to some 0.76% of all mortgage applications. Compare that to the second quarter of last year, when 1 in 120 applications (0.83%) of applications had indications of fraudulent activity.
The firm did not go into specifics about the changes to its methodology but noted that the shift was part of a routine update to its model.
“We deployed a fraud risk model update at the end of Q1 2022 to incorporate recent fraud findings and adjust the score calibration,” said Josh Wilson, primary fraud risk modeler at CoreLogic. “Keeping the model current helps our clients manage their risk efficiently. The current performance shows 46% detection at a 5% review rate, focusing resources on the most important areas.”
CoreLogic observed that while the change helped push the overall fraud risk score down, recent trends indicate that fraud risk may be on the uptick. The company’s report indicated increasing risk during the second-quarter monthly analysis after the deployment of the updated scoring model, and added that monthly trends in the early portions of the third quarter suggest that fraud risk is increasing as well.
Thus far in 2022, income fraud risk — the misrepresentation of the existence, continuance, source or amount of a borrower’s income — has seen the largest year-over-year jump, bounding 27.3% compared to Q2 2021. Much of the increase, per CoreLogic, is tied to the reduction in streamline refinances, which may not include income data.
Property fraud risk, which occurs when information about a property or its value is intentionally misrepresented, is not far behind, up 22.6% year over year during Q2 2022.
“Income fraud risk remains a top concern for lenders,” said Bridget Berg, principal for CoreLogic’s fraud solutions team. “But there is a rising focus on property value risk as home prices slow their growth and homes are taking longer to sell.”
Notably, while purchase transactions traditionally carry higher fraud risk than refinances (and continued to during this year’s second quarter), the gap in risk has narrowed. This is largely due to more of this year’s refinance transactions being of the cash-out variety, which have higher fraud risk levels than rate-and-term refis. Last year, CoreLogic data found purchase deals to be 87% riskier than refis, but this figure shrank substantially to 37% this year.
