2019 Mortgage Fraud Report September 2019 2019 Mortgage Fraud Report

Table of Contents

Fraud Report National Overview ...... 1

National Mortgage Fraud Index Risk Overview...... 2

Factors Affecting Fraud Risk ...... 3

National Mortgage Fraud Types Indicators...... 4

Mortgage Fraud Trends An Update on Out-Of-State Investors ...... 5 An Update on Employment Tenures Less Than One Year ...... 6 iBuyers and Fraud Risk...... 7

Multi-Closing Fraud Risk ...... 9

Mortgage Fraud Risk Highlights By State...... 10 By Geography...... 12

National Mortgage Fraud Index Methodology...... 14

ii Fraud Report National Overview

New York, Florida, and New Jersey remain the top three states for mortgage The CoreLogic Mortgage application fraud risk, with New Jersey moving from second to third place . Fraud Report analyzes New York had an 8 percent increase year-over year and Mississippi had a 9 percent increase—the other top ten states had stable or decreasing risk . the collective level of loan application fraud risk The top five states with the largest risk increases include: Idaho, Alabama, Mississippi, New York, and Delaware . States with the largest risk decreases the mortgage industry is include: Kansas, Missouri, Massachusetts, Illinois, and New Mexico. experiencing each quarter.

Jumbo loans for home purchases are the only segment showing a risk CoreLogic develops the increase . index based on residential mortgage loan applications Nationally, all fraud types showed decreased risk . Undisclosed Real Estate Debt fraud risk had the greatest decrease year-over-year, followed by processed by CoreLogic decreases in Property and Income fraud types . LoanSafe Fraud Manager™, a predictive scoring technology. The report MORTGAGE APPLICATION includes detailed data for FRAUD RISK INDEX 1 in 123 six fraud type indicators MORTGAGE APPLICATIONS that complement the ESTIMATED TO HAVE 11 4%. national index: identity, INDICATIONS OF FRAUD Q2 2018 TO Q2 2019 IN Q2 2019 income, occupancy,

During the second quarter of The CoreLogic Mortgage property, transaction, and 2019, an estimated 0.81 percent Application Fraud Risk Index undisclosed real estate debt. of all mortgage applications decreased 11.4 percent nationally contained fraud, about 1 in 123 from the second quarter 2018 to applications. By comparison, in the second quarter of 2019. This is the second quarter of 2018, our the first decrease in the index since estimate was 0.92 percent, or the third quarter of 2016. The about 1 in 109 applications. decrease is attributed to a strong spike in lower-risk refinance originations, fueled by a decline in interest rates, similar to the conditions of the last decrease.

September 2019 | 1 National Mortgage Fraud Index Risk Overview

In nearly every segment, risk decreased year-over-year . Jumbo purchases had a Most of the change came in small increase in risk of 3 .8 percent . The most notable risk decreases were in Q2 2019, where the average the conforming purchase and refinance segments - both down more than 25 percent - and in the jumbo refinance segment, which not only decreased in risk interest rates dropped about by 17 .4 percent but also increased in volume more than any other segment . 0.5 percent compared to the

National Mortgage Application Fraud Index Over Time prior three quarters. Even a 10 small interest rate decrease 150 may make it worthwhile to 140 refinance a jumbo loan. 10

120

110

100

90 2010-Q 2010-Q4 2011-Q1 2011-Q2 2011-Q 2011-Q4 2012-Q1 2012-Q2 2012-Q 2012-Q4 201-Q1 201-Q2 201-Q 201-Q4 2014-Q1 2014-Q2 2014-Q 2014-Q4 2015-Q1 2015-Q2 2015-Q 2015-Q4 201-Q1 201-Q2 201-Q 201-Q4 2017-Q1 2017-Q2 2017-Q 2017-Q4 2018-Q1 2018-Q2 2018-Q 2018-Q4 2019-Q1 2019-Q2

National Mortgage Application Fraud Index by Loan Segments: Purchase 00 DEFINITIONS 250

200 The Conforming LTV≤80 segment consists of applications for 150 owner-occupied mortgages with 100 Loan-To-Value (LTV) less than or 50 equal to 80 percent and a loan ConformingResidence Jumbo LTGT80 0 amount less than or equal to the conforming loan limit. 2010-Q 2010-Q4 2011-Q1 2011-Q2 2011-Q 2011-Q4 2012-Q1 2012-Q2 2012-Q 2012-Q4 201-Q1 201-Q2 201-Q 201-Q4 2014-Q1 2014-Q2 2014-Q 2014-Q4 2015-Q1 2015-Q2 2015-Q 2015-Q4 201-Q1 201-Q2 201-Q 201-Q4 2017-Q1 2017-Q2 2017-Q 2017-Q4 2018-Q1 2018-Q2 2018-Q 2018-Q4 2019-Q1 2019-Q2 The Jumbo LTV≤80 segment contains applications for owner- National Mortgage Application Fraud Index by Loan Segments: Refinance occupied mortgages with LTV less 00 ConformingResidence Jumbo LTGT80 than or equal to 80 percent and a 250 loan amount greater than the 200 conforming loan limit. 150 The LTV 80–100 segment consists of 100 applications for all mortgages with 50 LTV greater than 80 percent, but 0 less than or equal to 100 percent. 2010-Q 2010-Q4 2011-Q1 2011-Q2 2011-Q 2011-Q4 2012-Q1 2012-Q2 2012-Q 2012-Q4 201-Q1 201-Q2 201-Q 201-Q4 2014-Q1 2014-Q2 2014-Q 2014-Q4 2015-Q1 2015-Q2 2015-Q 2015-Q4 201-Q1 201-Q2 201-Q 201-Q4 2017-Q1 2017-Q2 2017-Q 2017-Q4 2018-Q1 2018-Q2 2018-Q 2018-Q4 2019-Q1 2019-Q2

2 | 2019 Mortgage Fraud Report Factors Affecting Fraud Risk

After steadily increasing since late 2016, fraud risk slowed and stabilized “The decrease in fraud through Q1 2019 . Interest rates from mid-2018 through Q1 2019 were risk mid-2019 appears relatively stable, averaging around 4.5 percent (30-year fixed). During that time the fraud risk index showed very little movement – from 149 to 152. temporary, based on However, in Q2 2019, rates dropped to an average of around 4 0. percent . unexpected interest rate The mix of purchase and refinance transactions also changed - refinances drops and an influx of low- accounted for 28 percent of applications for the last half of 2018, but by Q2 2019, they increased to 35 .5 percent . risk refinance transactions. Loan volumes overall were also up, which is usually a positive sign for The absolute number of a reduction in fraud risk . With a strong pipeline of loans, commission- risky loans did not decrease dependent loan participants are less likely to stray from acceptable practices . but is part of a larger mortgage market for now.” Share of Single-Family Originations Bridget Berg, Mortgage Fraud Solutions Forecast 80 Principal at CoreLogic 68% 70

0 28% 20

10 4%

0 2000 2002 2004 200 2008 2010 2012 2014 201 2018

Home Purchase Home Reﬁnancing Home Improvement

Source: HMDA (2000-2017), CoreLogic public records (2018), average of MBA, Freddie Mac, Fannie Mae projections (2019).

September 2019 | 3 National Mortgage Fraud Types Indicators

Undisclosed real estate debt fraud occurs when a loan applicant intentionally UNDISCLOSED REAL ESTATE DEBT FRAUD RISK fails to disclose additional real estate debt or past foreclosures . During the second quarter of 2019, this type of fraud risk decreased 12 .8 percent compared to the same quarter in 2018 . While the risk indicator decreased 12 8%. year-over-year, this is one of the most common issues today . Q2 2018 to Q2 2019

PROPERTY FRAUD RISK Property fraud occurs when information about the property or its value is intentionally misrepresented . From the second quarter of 2018 to the second quarter of 2019, property fraud risk decreased 9 9. percent nationally . 9 9%. Q2 2018 to Q2 2019

INCOME FRAUD RISK Income fraud includes misrepresentation of the existence, continuance, source, or amount of income used to qualify . From the second quarter of 2018 to the second quarter of 2019, the income fraud risk indicator decreased 7 7. percent . 7 7%. Q2 2018 to Q2 2019

Transaction fraud occurs when the nature of the transaction is misrepresented, TRANSACTION FRAUD RISK such as undisclosed agreements between parties and falsified down payments. The risk includes third party risk, non-arm’s length transactions, and straw buyers . At the end of the second quarter of 2019, the transaction risk indicator 3 8%. decreased 3 .8 percent when compared to the same quarter in 2018 . Q2 2018 to Q2 2019

Identity fraud occurs when an applicant’s identity and/or credit history is IDENTITY FRAUD RISK altered, a synthetic identity is created, or a stolen identity is used to obtain a mortgage . This indicator decreased 2 9. percent from the second quarter of 2 .9% 2018 to the second quarter of 2019 . Q2 2018 to Q2 2019

Occupancy fraud occurs when mortgage applicants deliberately misrepresent OCCUPANCY FRAUD RISK their intended use of a property (primary residence, secondary residence or investment). Programs, pricing, and underwriting guidelines are impacted by a property’s intended occupancy . From the second quarter of 2018 to the 2 0%. second quarter of 2019, the occupancy fraud indicator decreased 2 0. percent . Q2 2018 to Q2 2019

4 | 2019 Mortgage Fraud Report Mortgage Fraud Trends An Update on Out-Of-State Investors

In our 2018 annual report, we examined the increased risk and increased frequency of out-of-state investor (OOSI) applications. Key observations included: Markets with high concentrations of OOSI activity had higher 90-day delinquencies and foreclosures . Mortgage fraud rates for investment properties are 88 percent higher than baseline, and 140 percent higher for OOSI properties .

Reviewing our Mortgage Fraud Consortium data for 2018, we found this activity continues to increase: OOSI activity increased from 20 percent of investment applications in 2017 to 22 percent of investment applications in 2018 . The total activity increased by 37 .5 percent from 2013 to 2018 .

Average % of Years Out of State Investors 2013 16% 2014 17% 2015 18% 2016 18% 2017 20% 2018 22%

See our 2018 Mortgage Fraud Report for more detailed information on the trend .

September 2019 | 5 Mortgage Fraud Trends An Update on Employment Tenures Less Than One Year

In our 2018 annual report, we researched a Fannie Mae-reported scheme surrounding fake employers used to validate borrower income . In July 2019, Freddie Mac also published information about a “phantom employer” investigation . Some fake employers may appear legitimate and have valid phone numbers, addresses, and web sites . Others may not even have a viable address . False diplomas and college transcripts are often used to supplement the short tenure for younger borrowers. The most consistent red flag is that the time with the current employer is typically less than one year . This short tenure avoids fraudulent income detection through IRS tax transcripts.

In our 2018 report, we noted an increasing share of applications with borrowers having less than one year on the job, and that trend continues into 2019 .

The trend could be due to an increase in younger applicants (who have lower median job tenures), or more frequent job changes in general. The U.S. Bureau of Labor Statistics shows more modest changes in job tenure nationally in all age groups (10 percent shorter since 2014) than is reflected in loan applications.

With short job-tenure applications and fake employer schemes continuing to increase, it is important to be aware of this scheme and the corresponding red flags. More information is available on the Fannie Mae and Freddie Mac fraud prevention web sites, and in our 2018 Mortgage Fraud Report .

< 1 Year On Job

5.0

4.5

4.0

2.5

2.0

1.5

1.0

0.5

0.0 2011-Q1 2011-Q2 2011-Q 2011-Q4 2012-Q1 2012-Q2 2012-Q 2012-Q4 201-Q1 201-Q2 201-Q 201-Q4 2014-Q1 2014-Q2 2014-Q 2014-Q4 2015-Q1 2015-Q2 2015-Q 2015-Q4 201-Q1 201-Q2 201-Q 201-Q4 2017-Q1 2017-Q2 2017-Q 2017-Q4 2018-Q1 2018-Q2 2018-Q 2018-Q4 2019-Q1 2019-Q2

All Purchase First Time Home Buyer Purchase All Reﬁnance

6 | 2019 Mortgage Fraud Report Mortgage Fraud Trends iBuyers and Fraud Risk

The purchase and rapid resale of a property for a higher price (flipping) has traditionally been a red flag for potential mortgage fraud. Since the financial We analyzed transactions for crisis, flipping has become more common and less concerning as more the largest iBuyers to better renovators, both large and small, take on the task of updating aged housing . understand the growth and In the last two years, a growing portion of properties being purchased and relative fraud risks for this new quickly resold at a higher price are due to iBuyer activity. An iBuyer offers an type of real estate transaction: instant cash sale for qualified homes and flexibility for the home seller, while As of mid-2019, the iBuyer-as- avoiding open houses and contingencies in purchase agreements . Unlike seller activity is 18 times what most flippers, iBuyer price markups are modest—usually less than 10 percent. it was in early 2017 within our CoreLogic Mortgage Fraud It is not surprising that iBuyer transactions have lower fraud risk, as there is a Consortium transactions. high level of transparency and standardization, and home prices are still rising . In the markets where they The fraud risk outlook may change, especially if smaller companies try to operate, iBuyers accounted compete and home prices fall . If real estate speculators cannot sell properties for over 1 percent of the sales fast enough at an acceptable price, they can quickly drain operating capital . A transactions overall in 2018, and situation like this could motivate schemes where the property is sold to a straw in some markets they may be buyer at an inflated price, similar to a builder bailout. involved in 5 percent or more of transactions. Loans Where Seller is an iBuyer (Indexed at 100 in 2017) iBuyers began in select cities and have been expanding 2000 to new areas. They target 1800 properties in large, liquid 100 markets where automated

1400 valuations are most accurate.

1200 To date, Consortium applications where the seller is an iBuyer have 1000 lower fraud risk than the average 800 application from the same state 00 (2016 – Q2 2019).

400

200

0 2017-Q1 2017-Q2 2017-Q 2017-Q4 2018-Q1 2018-Q2 2018-Q 2018-Q4 2019-Q1 2019-Q2

September 2019 | 7 Mortgage Fraud Trends iBuyers and Fraud Risk (continued)

Percentage of iBuyers Per City, 2018

0.02% Portland

0.14 % Minneapolis

0.17% Sacremento 0.07% % 3.02 Denver 2.84% 2.23% Las Vegas 4.89% 0.68% 0.08% Raleigh Nashville % Los Angeles 2.29 Charlotte

% 0.21 % 0.32% Phoenix 1.42 Atlanta Riverside San Diego Dallas 2.47% % 0.08% 0.58 1.25% San Antonio Houston Orlando Tampa

Percentage of iBuyer Transactions Relative Risk of Loans Where Seller is an iBuyer by Company, 2018 A CA CO FL GA MN NC NV OR SC TN TX UT 2 120 22 illow Redﬁn noc

- - -5 - -7 -7 022 -8 Oﬀerpad -9 -10 -9

208 -12 -1 Opendoor -14

8 | 2019 Mortgage Fraud Report Multi-Closing Fraud Risk

Multi-lien fraud is an extremely profitable scam that takes advantage of the lag between closing and recording to solicit multiple loans on a single property . According to the CoreLogic Multi-Close Alert Program (MCAP), 2019 is projected to show an increase in multi-lien fraud .

Loan Amounts Averted Through Multi-Closing Alert Program

25M

20M

15M

10M

0M 2010 2011 2012 201 2014 2015 201 2017 2018 2019 nnualied

September 2019 | 9 Mortgage Fraud Risk Highlights By State

The top five states experiencing fraud risk growth are Idaho, Alabama, Mississippi, New York, and Delaware:

Highest Annual Risk Growth by State

Ran 15 20

10 Ran 12 Ran 5 Ran 1

Ran 1 5

0 ID AL MS NY D

Risk Rankings are based on state-level Mortgage Application Fraud Index. States with statistically insignificant volumes are excluded for this analysis.

Source: CoreLogic 2019

Fraud Type Indicators for States with Highest Year-Over-Year risk Growth

IDAHO ALABAMA MISSISSIPPI NEW YORK DELAWARE Property Transaction Property Income Occupancy Transaction Occupancy Income Property

10 | 2019 Mortgage Fraud Report Mortgage Fraud Risk Highlights By State (continued)

Ten States with the Highest Application Fraud Risk New York retains its top spot, and had a risk increase of 8 percent year-over-year .

Top Ten Riskiest States As Of Q2 2019 – Arrows Show Year-Over-Year Change

00 8

250 -4 -21 200 -7 -28 9 0 -17 - -29 150

100

0 NY FL NJ CA MS LA DC GA MD NM

September 2019 | 11 Mortgage Fraud Risk Highlights By Geography

Fraud Risk Heat Map The Fraud Risk heat map displays the CBSA rank for fraud risk as of Q2 2019 . Only the top 100 CBSAs by population are considered .

All tables or graphs below are limited to the top 100 Metropolitan areas based on population .

Fraud Risk

5 percentile 95 percentile

Five Metro Areas with the Highest Year-Over-Year Growth Five Metro Areas with the Largest Year-Over-Year Declines in Application Fraud Risk in Application Fraud Risk Fraud Risk Fraud Risk Core-Based Statistical Area Risk Index Index Change Core-Based Statistical Area Risk Index Index Change Syracuse, NY 150 60% Springfield, MA 70 -75% Albany-Schenectady-Troy, NY 190 58% Wichita, KS 49 -63% Tulsa, OK 178 36% Oklahoma City, OK 100 -49% McAllen-Edinburg-Mission, TX 216 34% Spokane-Spokane Valley, WA 82 -42% Cincinnati, OH-KY-IN 110 24% Albuquerque, NM 147 -40%

12 | 2019 Mortgage Fraud Report Mortgage Fraud Risk Highlights By Geography (continued)

Top 25 Metro Areas with the Highest Application Fraud Risk

2019 Q2 Yr/Yr 2018 Q2 Qtr/Qtr Q2 Core-Based Statistical Area Population Risk Index to 2019 Q2 to Q1, 2019 Risk Rank Miami-Fort Lauderdale-West Palm Beach, FL 6,158,824 309 7% -24% 1 New York-Newark-Jersey City, NY-NJ-PA 20,320,876 243 -7% -6% 2 McAllen-Edinburg-Mission, TX 860,661 216 34% 35% 3 Los Angeles-Long Beach-Anaheim, CA 13,353,907 213 -3% -10% 4 Deltona-Daytona Beach-Ormond Beach, FL 649,202 210 5% -19% 5 Tampa-St . Petersburg-Clearwater, FL 3,091,399 197 -7% -16% 6 Albany-Schenectady-Troy, NY 886,188 190 58% 61% 7 Tulsa, OK 990,706 178 36% 6% 8 Orlando-Kissimmee-Sanford, FL 2,509,831 167 -17% -17% 9 San Diego-Carlsbad, CA 3,337,685 166 -6% -17% 10 Oxnard-Thousand Oaks-Ventura, CA 854,223 163 -15% -15% 11 Cape Coral-Fort Myers, FL 739,224 163 -5% -22% 12 San Francisco-Oakland-Hayward, CA 4,727,357 160 -3% -11% 13 Urban Honolulu, HI 988,650 157 -25% -31% 14 Jacksonville, FL 1,504,980 157 -7% -24% 15 Augusta-Richmond County, GA-SC 600,151 151 -32% -12% 16 Syracuse, NY 654,841 150 60% 39% 17 El Paso, TX 844,818 150 -21% -7% 18 Atlanta-Sandy Springs-Roswell, GA 5,884,736 149 -19% -9% 19 Memphis, TN-MS-AR 1,348,260 148 -26% -6% 20 Las Vegas-Henderson-Paradise, NV 2,204,079 148 -20% -10% 21 Albuquerque, NM 910,726 147 -40% -9% 22 New Orleans-Metairie, LA 1,275,762 147 -19% -26% 23 Chattanooga, TN-GA 556,548 146 -7% 18% 24 Columbia, SC 825,033 145 6% -15% 25

September 2019 | 13 National Mortgage Fraud Index Methodology

Comprehensive fraud risk analysis based on the industry’s largest lender-driven mortgage fraud consortium and About CoreLogic leading predictive-scoring technology. CoreLogic (NYSE: CLGX), the leading provider of property The CoreLogic Mortgage Application Fraud Risk Index represents the collective insights and solutions, promotes level of fraud risk the mortgage industry is experiencing in each time period, a healthy housing market and based on the share of loan applications with a high risk of fraud. The index is thriving communities . Through standardized to a baseline of 100 for the share of high-risk loan applications its enhanced property data nationally in the third quarter of 2010 . solutions, services and tech- nologies, CoreLogic enables real The Fraud Type Indicators are based on specific CoreLogic LoanSafe Fraud estate professionals, financial Manager alerts . These alerts are compiled consistently for all CoreLogic institutions, insurance carriers, Mortgage Fraud Consortium members . Indicator levels are based on the government agencies and other prevalence and predictiveness of the relevant alerts . An increase in the housing market participants indicator correlates with increased risk of the corresponding fraud type . to help millions of people find, acquire and protect their homes . For more information, please visit www corelogic. com. .

For more information: corelogic.com/mortgagefraud | 866.774.3282 | [email protected]

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©2019 CoreLogic, Inc. All Rights Reserved. CORELOGIC, the CoreLogic logo, and LOANSAFE FRAUD MANAGER are trademarks of CoreLogic, Inc. and/or its subsidiaries. All other trademarks are the property of their respective holders Additional CBSA-level data available by request. 17-FRDRPT19-1909-01