How Today’s Digital Environment Is Impacting Mortgage Fraud Trends

It’s no secret that the pandemic prompted a digital acceleration. While this transition’s made our daily lives easier, it’s also created the perfect environment for fraudsters to thrive. In the mortgage industry, between Q2 of 2019 and Q2 of 2020, there was a six percent increase in risk related to home purchase applications. Lenders have to protect themselves and their customers. To do so, they must stay aware of changing mortgage fraud trends related to synthetic identities, increased applications, and occupancy fraud. 

Synthetic identities pose a real threat

Synthetic identity fraud, a combination of real and fake information, is one of the fastest-growing financial crimes in the U.S. According to McKinsey, synthetic identities account for 10 to 15 percent of lender losses per year. Fraudsters go to great lengths to falsify identities, applying for lines of credit and building up credit profiles over time until they eventually get approved. To legitimize the identity, scammers will make small purchases and pay off the debt, inflating their credit scores and enabling them to apply for larger lines of credit, like mortgages. 

Synthetic identities account for 10-15% of lender losses per year.

Suspicious and fraudulent behavior like this can be hard to detect and is one of the key mortgage fraud trends to look out for. For that reason, lenders have to consider more than just credit scores and incorporate innovative solutions into the lending process. Synthetic fraudsters rely on fictitious information to apply for lines of credit. With alternative data sources, lenders can access rental and utility payment histories directly from the provider to verify and authenticate identities, protecting themselves and consumers against future losses.

Increased application volume leaves lenders overwhelmed

The coronavirus’ impact on the economy led to record-low mortgage rates. With substantial savings on the table, demand for refinancing jumped 105 percent annually while applications for new home purchases increased by 26 percent. Mortgage brokers and lenders were overwhelmed as they faced an unprecedented volume of applications; some even turned away borrowers. Banks like PNC and Wells Fargo hired additional staff to accommodate the influx of applicants. 

To mitigate risks and detect inconsistencies in the application process, lenders need reliable and up-to-date identity and occupancy verification sources.

Although rates are expected to steadily creep back up, they’re likely to stay low enough to remain affordable and keep consumer demand high. Thus, this lending environment will continue to bring about heavy workloads that can lead staff to overlook red flags and increase mortgage fraud risks. To mitigate these risks and better detect inconsistencies in the application process, lenders can rely on automated access to rent payments and utility bills for identity and occupancy verification to streamline the process, easing the burden on employees. 

Occupancy fraud risks are on the rise

According to CoreLogic, occupancy fraud risk increased by 25.8 percent year-over-year, ending in June 2020. With mortgage rates at record lows, house flipping and rental properties are becoming more appealing to investors. However, for mortgage loan types like FHA, which are often subject to lower rates, owner occupancy is required for at least a year after purchasing. Enticed by low rates, investors will sometimes pose as owner-occupants. 

 

SEE HOW THIS MORTGAGE LENDER STREAMLINED OCCUPANCY VERIFICATION DURING THE PANDEMIC >

 

To ensure compliance with FHA regulations, lenders can digitally access utility bills for post-loan mortgage occupancy verification. Investing in a scalable and reliable solution like automated utility bill access directly from the provider can mitigate potential loan default risks by weeding out dishonest buyers. Implementing such tools can also streamline the lending process, increasing productivity and business continuity. 

Stay informed of changing mortgage fraud trends to reduce risk

As we continue to work towards market recovery, lenders can’t afford to fall prey to mortgage fraud. To protect themselves and their customers, lenders must remain vigilant and take all the necessary steps to ensure that applicants’ identities and addresses are valid. Staying informed on mortgage fraud trends and implementing the right tools for the verification process is critical. 

If you’re ready to digitize occupancy verification with automated access to borrower utility bills, Urjanet is here to help. Contact us today to get started.

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• How to Nail Proof of Address in a Growing Digital Age
• From Face-to-Face to Digital-First: Navigating Proof of Occupancy
• Resource: Utility Data for Mortgage Proof of Occupancy Verification

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