Over the past 18 months, incidents of fraud linked to HELOCs (Home Equity Line of Credit) have been on the rise following the growth in home equity lending levels, reports CoreLogic.
HELOC fraud has emerged despite the overall recent decline in mortgage loan applications.
Increasing home values have yielded higher levels of home equity, enabling more many homeowners who had been locked out of the market to purchase a different property, refinance, or obtain a home equity loan or HELOC, CoreLogic explains.
“While this dynamic has been a positive one for many households, the increase in HELOC activity has brought with it a higher level of fraud,” CoreLogic reports in its latest Insights Blog.
An example of HELOC fraud is “multi-lien fraud” — when scammers take advantage of the lag between closing and recording a loan to solicit multiple loans on a single property.
“Contrary to the increase in HELOC fraud cases, the incidence of other types of mortgage application fraud … has remained relatively stable,” CoreLogic says.
Mortgage application fraud varies significantly across housing markets. Florida ranked the highest among all states in the third quarter of 2014, according to CoreLogic’s Mortgage Application Fraud Index. The other top four states were Nevada, New York, New Jersey and Hawaii.
Of the largest 25 “Core Based Statistical Areas” (CBSAs) based on population, Miami-Fort Lauderdale-West Palm Beach, Fla. had the highest mortgage fraud risk as of the third quarter of 2014, followed by Tampa-St. Petersburg-Clearwater, Fla., New York-Newark-Jersey City, N.Y.-N.J.-Pa., Chicago-Naperville-Elgin, Ill.-Ind.-Wis. and Atlanta-Sandy Springs-Roswell, Ga.
“It is critical for mortgage originators and servicers to understand where the mortgage fraud risk ‘hot spots’ are at any given time and to leverage this information in their risk management,” CoreLogic concludes.