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Examining Loan Application Fraud and Defect Risk

CoreLogic’s National Mortgage Application Fraud Risk Index (Index) reported a Q1 2019 increase of 6% over Q1 2018, settling in at 152.

The Index is calculated from the aggregation of individual loan application fraud risk scores during the previous quarter. Score compilations are calculated for the 100 highest-populated Core-Based Statistical Areas (CBSA) in the U.S., and the 15 CBSAs with the highest fraud risk for the most recent quarter are shown in rank order.

The CoreLogic report notes that the share of refinance transactions increased to 32% in Q1, an increase from 28% from the prior three quarters, due to a reduction in interest rates.

Eight of the top 15 highest-risk CBSAs are in Florida, which continues trends seen during 2018, when the Sunshine State was one of three with the highest levels of mortgage-application fraud risk.

The market of Deltona-Daytona Beach-Ormond Beach, however, was the only market that saw an increase in its fraud risk from 2018, as its fraud risk increased 17%.

Florida markets included on the list that saw decreases were: Miami-Fort Lauderdale-West Palm Beach (-9%); Tampa-St. Petersburg-Clearwater (-12%); Lakeland-Winter Haven,(-23%); Cape Coral-Fort Myers (-29%); North Port-Sarasota-Bradenton (-10%); Jacksonville (-9%); and Orlando-Kissimmee-Sanford (-28%).

Miami-Fort Lauderdale-West Palm Beach was ranked as the No. 1 CBSA for Fraud Risk in Q1 of 2019 with an Index of 401. The market’s Index is 143 points higher than the second-ranked market, Deltona-Daytona Beach-Ormond Beach (261).

First American Financial Corporation also released its March Loan Application Defect Index this week, revealing that the Defect Index increased by 15.9% year-over-year.

The Defect Index, however, is down 6.8% from its peak of 6.8% in October 2013.

“Nationally, defect risk continued to surge in early 2019 and in February reached its highest point since 2013,” said Mark Fleming, Chief Economist at First American. “Suddenly in March, the acceleration stopped.”

First AM Financial Corporation noted there were two trends influencing defect risk: the rising share of refinance transactions and the continuation of the sellers’ market.

About Author: Mike Albanese

A graduate of the University of Alabama, Mike Albanese has worked for news publications since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, sports, and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the "Pilot Point Post-Signal," and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the "Dallas Morning News" and "Denton Record-Chronicle" over the past several years.

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