As the U.S. emerges from the dark clouds and storm residue of the housing bubble collapse, a clear day of growing housing sales, rising home values and solid residential purchase lending is in the air. Correct? That may not all necessarily be the case given a recent study by Kroll Factual Data on the potential of fraud in the mortgage application process by borrowers.
Based on Kroll’s proprietary processes and data, they estimate that potential misrepresentation by borrowers applying for loans increased 10.41 percent on average nationwide in the latest quarter of 2013. Not only are lenders having to comply this month with the new stringent Qualified Mortgage (QM) regulations from the Consumer Financial Protection Bureau (CFPB), they are now seeing a double-digit increase in fraud among borrowers applying for loans. This makes three quarters in a row for escalating potential loan fraud.
Where has likely loan fraud risen the most?
Why should consumers be concerned regarding mortgage fraud? We have learned that in good times, with rising values, when consumers fail to make their monthly payments on their housing loans, they can simply put the property on the market and in a reasonable period of time sell the property. But when home prices erode and the inventory jumps up, the ability for the lender to come out without a loss from borrowers unable or unwilling to make their monthly payments quickly recedes. In 2007, for example, there were an estimated 12 million homes in shadow inventory not even yet on the market that would eventually ¬be placed in the inventory of homes for sale. Prices plummeted and lenders hemorrhaged losses. In the long run, these type of losses further increase qualifying requirements and result in fewer homeowners and increases in both closing costs and monthly interest payments.
To read the entire report from Kroll Factual Data, which includes the 10 markets with the largest decline in potential mortgage fraud, click https://www.krollfactualdata.com/News/Kroll-Factual-Data-Announces-Spike-in-Potential-Mo