Real Estate News

Mortgage fraud risk is going down around the U.S. — but South Florida is still on top

Lenders use more tools to mitigate against mortgage fraud, including reviewing appraisals more closely to assess home values for sellers.
Lenders use more tools to mitigate against mortgage fraud, including reviewing appraisals more closely to assess home values for sellers. Getty Images/iStockphoto

Fewer people are lying when buying or selling a home in South Florida.

According to the third quarter 2019 mortgage fraud report by the analytic firm CoreLogic, 241 applications in the metro area of Miami, Fort Lauderdale and West Palm Beach raised red flags to lenders.

That marks a 22% drop from the second quarter, when 309 applications were deemed shady.

Mortgage fraud can take two forms: when buyers lie about their income on a loan application, or when sellers inflate the value of their property.

Capital Partners Mortgage President Craig A. Garcia attributes the drop to federal interest rates. The decline in mortgage interest rates between April and September has led to fewer buyers and sellers committing mortgage fraud, said Garcia. “There are a whole amount of applicants refinancing and less are committing fraud.”

The study analyzed the top 15 highest fraud risk metros in the country. It analyzed how much loan-application fraud risk the mortgage industries had based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager.

Despite the overall drop, though, the Miami metro area still led the U.S. for most mortgage fraud risk.

The metro area encompassing New York City, Newark and Jersey City ranked second with 208 fraud risk applications, down from 243 applications. California cities Los Angeles, Long Beach and Anaheim ranked third with 179 suspicious applications in the third quarter, down from 213.

Some attribute South Florida’s drop in fraud risk to stricter regulation from lenders, who are using more tools to mitigate against fraud, such as reviewing appraisals more closely to assess home values and ensure the asking price is not inflated.

“With every appraisal that gets done for Freddie Mac, there’s so much analysis that gets done with comparable [sales],” said Garcia. “Lenders know when to dive in and take a closer look.”

Others believe the drop in fraud risk is a result of the South Florida market’s stabilization after the recession.

“In the downturn, we found that the lower-priced market defaulted more or had a higher risk for mortgage fraud,” said Mike Pappas, president and CEO of Keyes Company. “This is good news. Everybody is a winner.”

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Rebecca San Juan writes about the real estate industry, covering news about industrial, commercial, office projects, construction contracts and the intersection of real estate and law for industry professionals. She studied at Mount Holyoke College and is proud to be reporting on her hometown.
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