Mortgage application fraud risk in the U.S. has been steadily increasing at the national level since CoreLogic started tracking this data in 2010, and according to new analysis, fraud risk is becoming more prevalent in larger metropolitan areas, particularly in the Northeast and Southeast. – CoreLogic Insights Blog
It was only a matter of time before the mortgage data started reflecting mortgage fraud again. I have suspected that mortgage application fraud had been rising with the sudden re-emergence of home-flipping and the “get-rich quick – find it, finance it, flip it” seminars proliferating in the larger metropolitan areas. The hot-spot fraud and flip areas the first time around are largely the hot-spot fraud and flip areas now: California, Nevada, Florida and the northeast.
Often overlooked is Colorado, which at one point during the last bubble collapse was in the top-5 for foreclosures. For the past year, up until about four weeks ago when the market seems to have stalled, Denver was as hot as any market in country as “investor/flippers” began bidding wars on homes. Wash, rinse, repeat. Just like stock market chasers, the retail home bubble chasers will never learn…
Not surprisingly, the CoreLogic study found that mortgage application fraud risk was increasing with purchase applications and decreasing with refinance applications and is directly linked with the quality of borrowers. I have no doubt that the rising purchase application fraud is highly correlated with the fact that “individual investors” are now typically financing their purchase with a mortgage rather then will all-cash (“find it, finance it, flip it”):
a growing number of investors are not buying all-cash, but instead are taking advantage of the broader set of financing options now available to them thanks to a new crop of nationwide companies that have emerged offering financing specifically for investment properties…In the universe of non-owner-occupied purchases, 44.7 percent were to all cash buyers, down from 61.0 percent a year ago to the lowest quarterly level since the first quarter of 2011. – Daren Blomquist, VP at RealtyTrac
Thus, while institutional investors are pulling out of the market, mom and pop retail investor/flippers are piling in. Sound familiar, as in, retail investors always chase market tops…
It’s no coincidence that mortgage purchase application fraud is rising with the rise individual retail investor home buying. While the non-doc liar loans have not made a comeback yet, there is evidence that flippers are masquerading as “vacation home buyers” in order to obtain financing:
The record supply of non-owner occupied single and multi-fam “investment” properties – and fraudulent loans for “vacation houses” that are really flips or rentals — owned by a small slice of the population will hit the supply chain much quicker than millions of foreclosures did from a wide base of the population in Bubble 1.0. – Mark Hanson.com
Hanson, who has a real estate consulting practice, goes on to say: “Hard-core speculation is back – some 40% of all transactions according to my calcs — complete with occupancy and appraisal fraud, process incompetence, willful blindness, and relationship-driven dissonance in lending, just like 2003 to 2007.”
While Hanson does not provide a source link for his assertion about the escalating fraud in the mortgages and appraisals, the CoreLogic article linked above explains that rising mortgage fraud is associated with purchase mortgages and the RealtyTrac data shows a huge spike in purchase mortgages coming from individual investors.
This is “old wine in a new bottle.” The housing market has once again become infested with rampant speculation and fraud. I will have more on this topic soon, including a discussion about how the National Association of Realtors manipulates its existing home sales data to the extent that it has become highly misleading.
I am confident that we’re about to see this housing bubble 2.0 collapse. I know that in the entire metropolitan Denver area home listings are quickly escalating and homes are now sitting on the market. I get “price change” alerts in my email several times a day now from REColorado. The higher end of the market – over $800k – is literally flooded with inventory.
With auto sales now apparently turning down, once the rug is pulled out from under the housing market this country faces an economic collapse. The biggest problem for the elitists trying to hold this up is that they are out of interest rate bullets and if they announce QE4 it will signal a helpless and desperate attempt to revive an economic corpse.
If you are facing legal action due to being charged with mortgage fraud, it’s important not to understate the severity of the repercussions. Because of this, you might want to contact a criminal lawyer who could help you and your case.