February 17, 2025

A recent episode of CoreLogic’s Core Conversations podcast series dived into the issue of increasing fraud trends in the mortgage sector, particularly focusing on “Occupancy Fraud as the next probable risk to the Mortgage Industry.”

The podcast was facilitated by Maiclaire Bolton Smith, CoreLogic’s VP of Hazard & Risk Management. The discussion revolved around CoreLogic’s 2023 Mortgage Fraud Report. The report presented alarming data which revealed that instances of fictitious occupancy loans have almost tripled since 2020. In the podcast, Bridget Berg, the company’s Principal of Industry Solutions provided valuable insight drawing from her vast experience in financial institutions, especially in tackling mortgage fraud and designing fraud risk programs.

Occupancy fraud is essentially when an investor falsely declares an investment property as their main residence to secure better rates. Although such fraud may be challenging to detect during origination, it can be identified post-closure, thereby increasing repurchase risk.

Mortgage rates nearing 8% have compromised affordability for most Americans. As the cost to secure a mortgage inflates, individuals are exploring strategies to decrease this expense, thereby leading to a surge in occupancy fraud. CoreLogic recorded the rise of occupancy fraud in the second quarter of 2023. Overall, mortgage fraud rates have stayed relatively constant, with one in 134 applications reportedly containing instances of fraud—increased slightly from one in 131 applications from the same period in 2022.

Bolton Smith highlighted that while mortgage fraud is not at its drastic level from 15 years ago, keeping tabs on it remains a high priority for lenders. Berg added, fraud detection can be tricky as every individual involved in a mortgage transaction has some motive that can often get rationalized.

To counter and control occupancy fraud, CoreLogic encourages more thorough examination of loans with high-risk scores in the predictive fraud risk score. Their analysis discovered such loans are over two times more likely to show signs of occupancy misrepresentation.

The CoreLogic report identified other types of fraud in addition to identity and occupancy fraud. These are:

– Income risk, which rose by 6.2%, stimulated by several factors such as inconsistent borrower income for their location, their job status, or the number of years in their current job.
– Transaction fraud risk, which increased by 1.9% due to potential illegal flipping activity and higher rates of transactions through corporations, LLCs or private lenders.
– Property risk, moderately increased by 1.8%, was influenced by higher rates of delinquency and foreclosure actions but was cushioned by fewer valuation issues as house prices stabilize.
– Undisclosed real estate debt risk declined by 17% overall, down 21.8% for buying and 9.3% for refinancing. Buyers in Q2 2023 were less likely to own multiple properties than buyers in Q2 2022.

To read more about this subject in CoreLogic’s 2023 Mortgage Fraud Report, click [here](https://www.corelogic.com/intelligence/2023-mortgage-fraud-report/). You can also listen to the Core Conversations Podcast on Occupancy Fraud [here](https://www.corelogic.com/intelligence/occupancy-fraud-may-be-the-next-risk-for-the-mortgage-industry/).

Frequently Asked Questions

What is occupancy fraud in the context of mortgages?

Occupancy fraud in mortgages happens when an investor falsely represents an investment property as their primary residence to secure better loan rates. Such misrepresentation can be detected after closure, thus increasing repurchase risk.

Why is there an increase in occupancy fraud?

Mortgage rates are nearing 8%, making housing less affordable for most Americans. As costs to take out a mortgage rise, people are finding ways to reduce such expenses, leading to an increase in occupancy fraud.

How is CoreLogic recommending to prevent occupancy fraud?

CoreLogic suggests scrutinizing loans with high-risk scores in their predictive fraud risk score category for preventing occupancy fraud. These loans are identified twice as likely to show signs of misrepresentation in residence occupancy.