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While mortgage fraud risk declined in the latest quarter, caution is urged for home-equity loans, which do not have the same number of safeguards as first mortgages.
In the second quarter, CoreLogic reports that one-in-131 mortgage applications had indications of fraud. That was an improvement from one-in-120 a year earlier.
But there is an emerging threat of mortgage fraud on second mortgages because stringent regulations put in place for banks on first mortgages don’t typically apply to home-equity lines of credit.
“Home equity loans don’t have the same strong process that traditional first mortgages do,” CoreLogic Principal in Fraud Solutions Bridget Berg said in the report. “These loans do not require title insurance, have less arduous underwriting processes and do not always require the applicant to be physically present at a closing table to gain access to cash. The result is that those looking to defraud banks can apply for multiple HELOC loans simultaneously while escaping detection.”
Irvine, California-based CoreLogic warned that the current market conditions are a “perfect storm” for scammers to prey on vulnerable borrower prospects like elderly consumers who own their houses outright. This includes ‘shot gunning,’ where borrowers take out multiple HELOCs at once.
CoreLogic concluded that while the risk of overall mortgage fraud has retreated, “home equity loans present a loophole for exploitation.”
