Nationally, the overall Mortgage Fraud index is 164 for...

1Mortgage Fraud Risk Report Q3 2013

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Nationally, the overall Mortgage Fraud index is 164 for Jumbo loans compared with 102 for non-jumbo loans. see page 12

The Interthinx Fraud Risk Report represents an in-depth analysis of residential mortgage fraud risk throughout the United States as indicated by the Interthinx Fraud Risk Indices. We hope you find it meaningful to your business endeavors and welcome you to leave comments and share your thoughts or pass along to your colleagues.

Executive Summary

Trends

Hot Spots

Type Specific

Special Interest

2Q3 2013

proven risk intelligence for lenders and investors

©2013. All rights reserved. FraudGUARD is a registered trademark of Interthinx, Inc., Interthinx is a registered trademark of Interthinx, Inc..

Executive Summary

The National Mortgage Fraud Risk Index is 108 this quarter, a 4 percent increase from last quarter and a 10 percent increase from a year ago.

• CaliforniaistheriskieststatewithaMortgageFraudRiskIndexvalueof151. It also contains seven of the top 10 MSAs for overall risk, six of the top 10 MSAs for Identity Fraud Risk, and all of the 10 riskiest MSAs for Employment/Income Fraud Risk.

• TheDistrictofColumbiahadthesecondhighestmortgagefraudriskindexvalue,surpassingallstatesexceptCalifornia,withanindexvalueof146.ThisisthefirsttimethatWashingtonDChasbeeninthetoptwointhislistsincetheinceptionofthis report in Q2 2009.

• OccupancyFraudRiskincreasedby17percentfromlastquartertoavalueof147.Increases in the occupancy fraud risk for purchases (+9 percent) and refinances (+13 percent) contribute to the increase in this index, as does a decline in the market share of refinances which inherently have less occupancy fraud risk than purchases.

• Jumboloanshaveahigherfraudriskcomparedtoconventionalloansforalltypesoffraudrisk.Nationally,theoverallriskindexforjumboloansis164,comparedto102 for conventional loans.

3Mortgage Fraud Risk Report Q3 2013interthinx.com 800.333.4510 [email protected]

About Tableau maps: www.tableausoftware.com/mapdata

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Figure 1: Mortgage Fraud Risk Index Q3 2013 by State


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You can:- Highlight any state in the map or bar chart and isolate where it falls on each ofthe graphics- Hover over any bar to find out the Mortgage Fraud Index value for the state. - Sort the states in the bar charts so that they are ordered by index value, changein index or alphabetic.- Select to view information for All Loans, or only Purchases, or only refinances using the radio buttons to the left.

Legend1. LOW RISK: 0-74

2. MODERATE RISK: 75-99

3. HIGH RISK: 100-124

4. VERY HIGH RISK: 125+

Fraud Risk Trends

The National Mortgage Fraud Risk Index is 108 this quarter, a 4 percent increase from last quarter and a 10 percent increase from a year ago.

Figure 1 shows the Mortgage Fraud Risk Index for each state, with risk decreasing from left toright.Therehavebeensomesignificantchangesintheriskieststates.CaliforniamovesfromnumbertwotonumberonewithaMortgageFraudRiskindexvalueof151,a16percentincreasefromQ2.WashingtonDCmovesfromnumberthreetonumbertwowithaMortgageFraudRiskvalueof146,a14percentincreasefromlastquarter.ThisisthefirsttimethatWashingtonDChasenteredintothetoptwointhislistsincetheinceptionofthisreportinQ2 2009. Two first time entrants into the top 10, Delaware and Montana, are in third and fourth, respectively. Rounding out the top 10 this quarter are Hawaii, Florida, Alaska, Utah, Connecticut,andNevada.Nevada’sfallfromfirsttotenthplaceisparticularlynotablebecausethis is the first time it has dropped out of the top three since the inception of this report. MississippiandWestVirginiatiedfortheleastriskystateswithindexvaluesof66.NorthDakota,SouthDakota,Iowa,Nebraska,Kentucky,Alabama,Ohio,andKansasroundoutthe10 least risky states.

Figure 1: Mortgage Fraud Risk in Q3 2013 by Metropolitan Statistical Area (MSA)

4Q3 2013




Figure 2: Mortgage Fraud Risk Q3 2013 by MSA

About Tableau maps: www.tableausoftware.com/mapdataAbout Tableau maps: www.tableausoftware.com/mapdata

Type of LoanALLPURCHASEREFINANCE

You can:- Hover over any MSA to find out the Mortgage Fraud Risk Index value.- Select to view information for All Loans, or only Purchases, or only refinances using the radio buttons to the left.

Legend1. Low Risk:0-74

2. Moderate Risk:75-99

3. High Risk:100-124

4. Very High Risk:125+

Hot Spots

Mortgage fraud perpetrators have a propensity to operate in locations where opportunity is maximized. For the past several years, the maximum opportunity has been found in markets with high levels of distressed properties and borrowers. Figure 2 shows a high density of veryhighriskmetropolitanareasinCaliforniaandFlorida,whereongoingmarketdisruptionsinvolving high foreclosure and underwater borrower levels, a protracted foreclosure process, and intense investor interest have helped to depress inventory and create upward pressure on housing prices.

Figure 2: Mortgage Fraud Risk Index in Q3 2013 by State


You can:- Select to view information for All Loans, or only Purchases, or onlyrefinances using the radio buttons to the left.

Rank MSA

FraudRisk

Index Q32013

PctChangefrom Q2

2013

PctChangefrom Q3

2012

1 FAYETTEVILLE-SPRINGDALE-ROGERS, AR-MO

2 SAN FRANCISCO-OAKLAND-FREMONT, CA

3 LOS ANGELES-LONG BEACH-SANTA ANA, CA

4 SAN DIEGO-CARLSBAD-SAN MARCOS, CA

5 MODESTO, CA

6 MIAMI-FORT LAUDERDALE-POMPANO BEACH, ..

7 SAN JOSE-SUNNYVALE-SANTA CLARA, CA

8 BAKERSFIELD, CA

9 SAN LUIS OBISPO-PASO ROBLES, CA

10 TULSA, OK

11 UNITED STATES

20.8%31.0%186

50.9%27.7%166

42.1%22.7%162

35.0%23.7%162

16.7%20.3%154

15.0%19.5%153

52.5%19.8%151

2.1%19.5%147

23.7%5.0%146

50.5%47.5%146

10.2%3.9%108

Table 1: MSAs with Highest Overall Fraud Risk Q3 2013


Table 1 lists the 10 Metropolitan Statistical Areas (MSAs) with the highest overall Mortgage Fraud Risk in the United States. The riskiest MSA this quarter is Fayetteville-Springdale-Rogers Arkansas-Missouriwhoseindexincreasedby31percentfromlastquarterto186,pushingitfromthirdtofirstplace.ThreemajorCaliforniapopulationcentersofSanFrancisco-Oakland-Fremont,LosAngeles-LongBeach-SantaAnaandSanDiego-Carlsbad-SanMarcosareinsecond,thirdandfourth,respectively.Intotal,Californiaclaimssevenofthe10riskiestMSAs;theotherexceptionsbeingMiami-FortLauderdale-PompanoBeach,Florida,andTulsa,Oklahoma.Inkeepingwiththe4percent increase in the national index, all but one of these top 10 MSAs have experienced double digit increases since the last quarter.

Table 1: MSAs with the Highest Fraud Risk in Q3 2013

6Q3 2013



Rank ZIP City, State Index

1 94547 Hercules, CA

2 72756 Rogers, AR

3 92037 La Jolla, CA

4 95111 San Jose, CA

5 92127 San Diego, CA

6 90240 Downey, CA

7 90710 Harbor City, CA

9 91801 Alhambra, CA

8 60435 Joliet, IL

10 94403 San Mateo, CA

362

358

357

348

343

336

330

317

317

307

Table 2: ZIPs with the Highest Mortgage Fraud Risk Q3 2013


You can:- Select to view information for All Loans, oronly Purchases, or only Refinances usingthe radio buttons to the left.

Table2liststhe10ZIPcodeswiththehighestMortgageFraudRiskthisquarter.Thisquarter’sriskiestZIPcode,withanindexvalueof362,is94547inHercules,CaliforniaandiscontainedwithinthesecondriskiestMSA,SanFrancisco-Oakland-Fremont.ThesecondriskiestZIP,72756islocatedinthisquarter’shighestriskMSA,Fayetteville-Springdale-RogersArkansas-Missouri.EightZIPsfromCaliforniaareamongthetop10riskiestthisquarter.ZIPcode60435inJoliet,Illinoisistheonlyothernon-CalifornialocationbesidesRogers,Arkansastomakeitintothisquarter’stop10list.

Table 2: ZIPs with the Highest Fraud Risk in Q3 2013


Overall PropertyValuation

Identity Occupancy Employment/ Income

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Figure 3: Quarterly Change in Risk Types


You can:- Select to view information for All Loans, or only Purchases, oronly refinances using the radio buttons to the left.

Type-Specific Mortgage Fraud Risks

Interthinxtracksfourtype-specificfraudriskindices:PropertyValuation,Identity,Occupancyand Employment/Income. Figure 3 shows the quarterly changes in the overall index as well as the type-specific indices. It is clear that the increase in overall risk is driven by large increases inidentity(+18percent)andoccupancy(+17percent)fraudrisk,buttheseincreasesweresomewhat offset by the 18 percent decrease in the Employment/Income Fraud Risk Index.

Figure3:QuarterlyChangeinTypeSpecificMortgageFraudRiskinQ32013



Rank MSA

FraudRisk

Index Q32013

PctChangefrom Q2

2013

PctChangefrom Q3

2012


2 CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI

3 PALM BAY-MELBOURNE-TITUSVILLE, FL

4 ALBUQUERQUE, NM

5 BAKERSFIELD, CA

6 DELTONA-DAYTONA BEACH-ORMOND BEACH, ..

7 MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN-WI

8 OCALA, FL

9 LAKELAND-WINTER HAVEN, FL

10 YAKIMA, WA

11 UNITED STATES

-14.6%-0.6%182

13.9%4.2%172

27.1%57.9%169

158.1%3.2%160

0.0%4.0%158

37.2%1.3%155

-8.8%1.3%155

25.0%39.6%155

0.0%-1.3%154

23.4%36.6%153

2.0%-2.9%102

Table 3: MSAs with Highest Property Valuation Fraud Risk Q2 2013

TypeALLPURCHASEREFINANCE

PROPERTY VALUATION FRAUD RISK INDEX

Property Valuation Fraud is perpetrated by manipulating property value to create “equity” which is then extracted from loan proceeds by various means. Table 3 lists the 10 riskiest MSAs for Property Valuation Fraud this quarter. The national Property Valuation Fraud Risk Index is at 102, a 3 percent drop from the last quarter. Fayetteville-Springdale-Rogers Arkansas-Missouri climbs from second place to top the list with a Property Valuation Fraud Risk Index value of 182. Chicago-Naperville-JolietIllinois-Indiana-Wisconsin,withanindexof172,isinsecondplace,andPalmBay-Melbourne-TitusvilleFlorida,whoseindexvalueincreased58percentfromthelastquarterto169,isinthird.Thetop10containsthreeadditionalFloridaMSAs:Deltona-DaytonaBeach-OrmondBeach,OcalaandLakeland-WinterHaven.AlbuquerqueNewMexico,infourthplace,hadanoteworthyyear-on-yearincreaseof158percent.

Table 3: MSAs with the Highest Property Valuation Fraud Risk in Q3 2013



Rank MSA

FraudRisk

Index Q32013

PctChangefrom Q2

2013

PctChangefrom Q3

2012


2 MOBILE, AL


4 SALT LAKE CITY, UT

5 SALINAS, CA

6 REDDING, CA

7 ANCHORAGE, AK




11 UNITED STATES

89.5%65.5%288

43.6%101.0%201

37.0%12.3%174

19.2%110.0%168

23.5%-1.8%163

161.3%74.2%162

58.4%125.4%160

62.9%19.7%158

43.1%22.8%156

17.4%20.2%155

10.3%17.6%107

Table 4: MSAs with Highest Identity Fraud Risk Q3 2013


IDENTITY FRAUD RISK INDEX

Identity Fraud is often used in mortgage fraud schemes in order to hide the identity of the perpetrators and/or to obtain a credit profile that meets lender guidelines. Table 4 describes the 10 riskiest MSAs for Identity Fraud Risk. The national index for Identity Fraud Risk is up 18 percentsincelastquarterwithavalueof107.Fayetteville-Springdale-Rogers,Arkansas-Missouri–up66percentto288–retainsitsnumberonespotfromlastquarter.MobileAlabama,whoseindex value more than doubled since last quarter to 201, enters the Top 10 in second place. San LuisObispo-PasoRoblesCaliforniaremainsinthirdplacewithanindexvalueof174.SalinasCaliforniaandSanJose-Sunnyvale-SantaClaraCaliforniaalsomakerepeatappearancesinthetop10IdentityFraudRisklist,andareamongthesixCaliforniaMSAsinthistop10.

Table 4: MSAs with the Highest Identity Fraud Risk in Q3 2013



Rank MSA

FraudRisk

Index Q32013

PctChangefrom Q2

2013

PctChangefrom Q3

2012


2 OXNARD-THOUSAND OAKS-VENTURA, CA

3 MIAMI-FORT LAUDERDALE-POMPANO BEACH, ..




7 CHARLESTON ET AL, SC

8 GREELEY, CO


10 TULSA, OK

11 UNITED STATES

107.1%81.4%263

100.8%145.6%253

32.6%38.5%252

117.4%70.5%237

149.5%111.6%237

23.2%47.1%228

103.6%49.3%224

72.1%83.5%222

177.2%79.5%219

48.0%86.2%216

36.1%16.7%147

Table 5: MSAs with Highest Occupancy Fraud Risk Q3 2013


OCCUPANCY FRAUD RISK INDEX

OccupancyFraudisprimarilycommittedbyinvestorswhofalselyclaimtheintenttooccupyapurchased property in order to obtain a mortgage with a lower down payment and/or lower interest rate.Table5liststhetop10riskiestMSAsforOccupancyFraudRisk.Nationally,theOccupancyFraudRiskIndexis147,up17percentfromlastquarter.Increasesintheoccupancyfraudriskfor purchases (+9 percent) and refinances (+13 percent) contribute to the increase in this index, as does a decline in the market share of refinances which inherently have less occupancy fraud riskthanpurchases.TheriskiestMSAforOccupancyFraudRisk–SanDiego-Carlsbad-SanMarcosCalifornia–joinsthetop10listinfirstplacewithanindexvalueof263,an81percentincreasefromlastquarter.Oxnard-ThousandOaks-VenturaCaliforniacomesinsecondat254,up146percent from last quarter. Miami-Fort Lauderdale-Pompano Beach Florida is in third place with an indexvalueof252,andLosAngeles-LongBeach-SantaAnaCaliforniaandSanFrancisco-Oakland-FremontCaliforniacompletethetopfive.

Table5:MSAswiththeHighestOccupancyFraudRiskinQ32013


Rank MSA

FraudRisk

Index Q32013

PctChangefrom Q2

2013

PctChangefrom Q3

2012




4 MODESTO, CA


6 BAKERSFIELD, CA

7 SACRAMENTO--ARDEN-ARCADE--ROSEVILLE, ..

8 RIVERSIDE-SAN BERNARDINO-ONTARIO, CA


10 OXNARD-THOUSAND OAKS-VENTURA, CA

11 UNITED STATES

23.6%-1.9%152

11.3%-7.5%148

-2.7%-11.6%145

31.5%23.5%142

2.2%-12.5%140

28.2%61.0%132

8.3%-10.9%131

0.8%-13.4%123

-10.2%-18.5%123

-17.9%-21.2%119

-11.6%-17.4%76

Table 6: MSAs with Highest Employment/Income Fraud Risk Q3 2013



Table6:MSAswiththeHighestEmployment/IncomeFraudRiskinQ32013

EMPLOYMENT/INCOME FRAUD RISK INDEX

Employment/IncomeFraudoccurswhenanapplicant’sincomeismisrepresentedinordertomeetlenderunderwritingguidelinesforaloan.Table6liststhetop10riskiestMSAsforEmployment/IncomeFraudRisk.Justasoccurredlastquarter,thetop10riskiestareasforEmployment/IncomeFraudRiskarealllocatedinCalifornia.Employment/IncomeFraudRiskhasfallennationallyto76,a17percentdropfromthepreviousquarter.SanLuisObispo,lastquarter’sfourthriskiestMSA,sawascant2percentdecreaseinitsindexvalue,butat152itisnowtheriskiestMSA.LosAngeles-LongBeach-SantaAnaremainedinsecondplaceat148,down8percentfromQ22013.SanDiego-Carlsbad-SanMarcos,lastquarter’sriskiestMSAforEmployment/IncomeFraud,felltothirdthisquarterwithanindexvalueof145.ModestoandBakersfieldaretheonlyMSAsnewtothisquarter’stop10list,aswellastheonlyareas on the list whose index values increased from last quarter.


Jumbo Loan Analysis

A mortgage is classified as “jumbo” when the amount of the loan exceeds the limits set by Fannie Mae and Freddie Mac. In most areas of the country, the conventional/conforming loanlimitis$417,000;itrisesto$625,000inHawaii,Alaskaandinothermarketsdesignated as high-cost. In this section we analyze the mortgage fraud risk in jumbo loans compared with that in non-jumbo loans.

Figure 4 illustrates the contrast in Q3 2013 index values between jumbo and non-jumbo loans across all type-specific risk indices. For all fraud risk types, the fraud risk index values are much higher for jumbo loans than when all loans are considered. Nationally, the overallMortgageFraudRiskIndexis164forjumboloanscomparedwith102fornon-jumboloans. The most striking difference is seen in the Employment/Income Fraud Risk Index, wheretheindexvalueforjumboloansis146,versusavalueof69fornon-jumboloans.

Figure4:Jumbo,Conventional/ConformingandAllLoans’MortgageFraudRiskbyFraudTypefor the United States


About the Interthinx Fraud Risk Indices

The Fraud Risk Indices are calculated based on the frequency with which indicators of fraudulent activity are detected in mortgage applications processed by the Interthinx FraudGUARD® system, a leading loan-level fraud detection tool available to lenders and investors.

The Interthinx Fraud Risk Indices consist of the:

• PropertyValuationFraudRiskIndexwhichconsidersindicatorsthatthesubjectpropertyvaluehasbeen manipulated. The index is based on the percentage of loans that have these indicators and is calibrated so that the national index based on all loans in Q1 2012 equals 100.

• IdentityFraudRiskIndexwhichconsidersindicatorsthattheborrower’sidentityhasbeenchanged in order to obtain a credit profile that meets lender guidelines. The index is based on the percentage of loans that have these indicators and is calibrated so that the national index based on all loans in Q1 2012 equals 100.

• OccupancyFraudRiskIndexwhichconsidersindicatorsthattheborrowerisaninvestorwhofalsely claims the intent to occupy the property in order to obtain a lower down payment and/or interest rate. The index is based on the percentage of owner-occupied loans that have these indicators and is calibrated so that the national index based on all owner-occupied loans in Q1 2012 equals 100.

• Employment/IncomeFraudIndexwhichconsidersindicatorsthattheapplicant’sincomeismisrepresented in order to meet lender underwriting guidelines for a loan. The index is based on the percentage of loans that have these indicators and is calibrated so that the national index based on all loans in Q1 2012 equals 100.

OverallMortgageFraudRiskIndexwhichiscalculatedastheaverageofthefourtype-specificindices.

Interthinx recognizes the adaptations that fraudsters make in a changing market, and proactively strives to identify and report the latest patterns it finds in the fraud community. In an effort to capture these changes in fraud activity, Interthinx has made major changes and enhancements to the Mortgage Fraud Risk Index beginning with the report for Q1 2013. Due to the comprehensive nature of these enhancements, index values published prior to Q1 2013 may not be directly comparable to index values published in Q1 2013 or thereafter.


About the Interthinx Mortgage Fraud Risk Report

The Interthinx Fraud Risk Report represents an in-depth analysis of residential mortgage fraud risk throughout the United States as indicated by the Interthinx Fraud Risk Indices. Published quarterly, as part of the Fraud Risk Report, Interthinx will report on the geographic regions with the highest Mortgage Fraud Risk Index as well as those with the highest Property Valuation, Identity, Occupancy,andEmployment/IncomeFraudRiskIndices.TheInterthinxFraudRiskIndicestracktheserisksinallStates,Metropolitanareas,Countiesandcountyequivalents,andZIPcodethroughout the United States. Starting in Q1 2013 all this information is available based on all loans, as well as on purchases only, and refinances only.

About Interthinx

Interthinx, a Verisk Analytics (Nasdaq:VRSK) subsidiary, provides essential products and services to mitigate risk in the mortgage and retail lending marketplace. Interthinx offers solutions in mortgage fraud and verification, property valuation, compliance, quality control, loss mitigation, retailloanlossforecasting,andcapitalplanningthatareusedbythenation’stopfinancialinstitutions. Interthinx helps its clients minimize risk, increase operational efficiencies, satisfy regulator demands, manage data verification, and remain compliant. For more information, visit www.interthinx.comorcall1-800-333-4510.

MEDIACONTACT: Depth Public RelationsTelephone:301-337-8477Email: [email protected]

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