An estimated 11,100 mortgage applications filed in the second quarter of 2014 contained fraudulent information or serious misrepresentations, according to data released on Tuesday by CoreLogic. The total represents 0.67% of all mortgage applications and is down from 19,700 applications (0.69%) in the second quarter of 2013.

The highest year-over-year growth in mortgage application fraud risk was noted in Florida, where it was up 72.6% compared with the second quarter a year ago. The states rounding out the top five are New Jersey (62.4%), New York (58.2%), Mississippi (34.5%) and Connecticut (33.8%). In these five states and in Rhode Island, fraud risk rose to its highest level since 2010.

The fraud risk index evaluates six information components on a mortgage application: employment, identity, income, occupancy, property and undisclosed debt. The biggest year-over-year gain was posted in property fraud risk, up 3.3%, while undisclosed debt risk dropped 22.7% to post the largest annual reduction.

An executive at CoreLogic said:

In addition to the underlying fundamentals, the purchase mortgage market is weak. This weakness is due in part to the tightness of the credit envelope …. This trend indicates that credit standards are moderating, but from very tight conditions. A number of institutions are relying on advanced analytics or cautious relaxation of credit overlays to prudently expand the credit envelope.

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Among the factors influencing fraud risk are:

• Rising interest rates, which have caused many of the best-qualified borrowers to exit the market.
• Increasing home values have enabled many homeowners with previously marginal equity back into the market.
• Job creation and aging negative credit records from the beginning of the recession have increased the number of qualified borrowers.

Fraud risk rose only for property fraud, when a borrower intentionally misrepresents the market value of the property. Fraud risk fell 1.5% year-over-year on occupancy fraud, wherein borrowers misrepresent their intentions to occupy the mortgaged property. Employment fraud risk, in which a borrower misrepresents employment information, dropped 2%. Lying about income fell 4% year-over-year and identity fraud risk fell 18.5%. Undisclosed debt risk fell the most, likely due to more diligence on the part of lenders to comply with the ability-to-repay rule.

The five states with the largest year-over-year declines in application fraud risk are Arizona (-45.4%), West Virginia (-39.6%), Virginia (-31.1%), District of Columbia (-31.1%) and Colorado (-25.8%).

The five metropolitan areas with the highest year-over-year growth in fraud risk are:

• Miami-Fort Lauderdale-West Palm Beach, Fla., up 113.2%
• Bridgeport-Stamford-Norwalk, Conn., up 83.5%
• North Port-Sarasota-Bradenton, Fla., up 77.1%
• Tampa-St. Petersburg-Clearwater, Fla., up 61.2%
• New York-Newark-Jersey City, up 59.3%

The five metro areas with the largest year-over-year declines are:

• Urban Honolulu, down 48.9%
• Virginia Beach-Norfolk-Newport News, down 43.1%
• Greenville-Anderson-Mauldin, S.C., down 40.0%
• Tucson, down 39.6%
• Columbia, S.C., down 39.0%

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