2019 Mortgage Fraud ReportSeptember 2019

2019 Mortgage Fraud Report

Table of ContentsFraud Report

National Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

National Mortgage Fraud IndexRisk Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Factors Affecting Fraud Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

National Mortgage Fraud TypesIndicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Mortgage Fraud TrendsAn Update on Out-Of-State Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5An Update on Employment Tenures Less Than One Year . . . . . . . . . . . 6iBuyers and Fraud Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Multi-Closing Fraud Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Mortgage Fraud Risk HighlightsBy State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10By Geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

National Mortgage Fraud IndexMethodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ii

September 2019 | 1

Fraud ReportNational Overview

New York, Florida, and New Jersey remain the top three states for mortgage application fraud risk, with New Jersey moving from second to third place . New York had an 8 percent increase year-over year and Mississippi had a 9 percent increase—the other top ten states had stable or decreasing risk .

The top five states with the largest risk increases include: Idaho, Alabama, Mississippi, New York, and Delaware . States with the largest risk decreases include: Kansas, Missouri, Massachusetts, Illinois, and New Mexico.

Jumbo loans for home purchases are the only segment showing a risk increase .

Nationally, all fraud types showed decreased risk . Undisclosed Real Estate Debt fraud risk had the greatest decrease year-over-year, followed by decreases in Property and Income fraud types .

During the second quarter of 2019, an estimated 0.81 percent of all mortgage applications contained fraud, about 1 in 123 applications. By comparison, in the second quarter of 2018, our estimate was 0.92 percent, or about 1 in 109 applications.

1 in 123 MORTGAGE APPLICATIONS

ESTIMATED TO HAVE INDICATIONS OF FRAUD

IN Q2 2019

MORTGAGE APPLICATION FRAUD RISK INDEX

11 .4% Q2 2018 TO Q2 2019

The CoreLogic Mortgage Application Fraud Risk Index decreased 11.4 percent nationally from the second quarter 2018 to the second quarter of 2019. This is the first decrease in the index since the third quarter of 2016. The decrease is attributed to a strong spike in lower-risk refinance originations, fueled by a decline in interest rates, similar to the conditions of the last decrease.

The CoreLogic Mortgage Fraud Report analyzes the collective level of loan application fraud risk the mortgage industry is experiencing each quarter. CoreLogic develops the index based on residential mortgage loan applications processed by CoreLogic LoanSafe Fraud Manager™, a predictive scoring technology. The report includes detailed data for six fraud type indicators that complement the national index: identity, income, occupancy, property, transaction, and undisclosed real estate debt.

2 | 2019 Mortgage Fraud Report

National Mortgage Fraud IndexRisk Overview

In nearly every segment, risk decreased year-over-year . Jumbo purchases had a small increase in risk of 3 .8 percent . The most notable risk decreases were in the conforming purchase and refinance segments - both down more than 25 percent - and in the jumbo refinance segment, which not only decreased in risk by 17 .4 percent but also increased in volume more than any other segment .

National Mortgage Application Fraud Index Over Time160

150

140

130

120

110

100

90

2010

-Q3

2010

-Q4

2011

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2011

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2011

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2011

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2012

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2012

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2012

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2012

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2013

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2013

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2013

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2013

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2014

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2014

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2014

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2014

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2015

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2015

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2015

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2015

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2016

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2016

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2016

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2016

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2017

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2017

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2017

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2017

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2018

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2018

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2018

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2018

-Q4

2019

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2019

-Q2

National Mortgage Application Fraud Index by Loan Segments: Purchase300

250

200

150

100

50

0

2010

-Q3

2010

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2011

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2011

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2011

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2011

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2012

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2012

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2018

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2018

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2018

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2018

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2019

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2019

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Conforming_Residence Jumbo LTV_GT_80

National Mortgage Application Fraud Index by Loan Segments: Refinance300

250

200

150

100

50

0

2010

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2010

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2011

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2011

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2011

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Conforming_Residence Jumbo LTV_GT_80

DEFINITIONS

The Conforming LTV≤80 segment consists of applications for owner-occupied mortgages with Loan-To-Value (LTV) less than or equal to 80 percent and a loan amount less than or equal to the conforming loan limit.

The Jumbo LTV≤80 segment contains applications for owner-occupied mortgages with LTV less than or equal to 80 percent and a loan amount greater than the conforming loan limit.

The LTV 80–100 segment consists of applications for all mortgages with LTV greater than 80 percent, but less than or equal to 100 percent.

Most of the change came in Q2 2019, where the average interest rates dropped about 0.5 percent compared to the prior three quarters. Even a small interest rate decrease may make it worthwhile to refinance a jumbo loan.

September 2019 | 3

Factors Affecting Fraud Risk

After steadily increasing since late 2016, fraud risk slowed and stabilized through Q1 2019 . Interest rates from mid-2018 through Q1 2019 were relatively stable, averaging around 4.5 percent (30-year fixed). During that time the fraud risk index showed very little movement – from 149 to 152. However, in Q2 2019, rates dropped to an average of around 4 .0 percent .

The mix of purchase and refinance transactions also changed - refinances accounted for 28 percent of applications for the last half of 2018, but by Q2 2019, they increased to 35 .5 percent .

Loan volumes overall were also up, which is usually a positive sign for a reduction in fraud risk . With a strong pipeline of loans, commission-dependent loan participants are less likely to stray from acceptable practices .

Share of Single-Family Originations

80%

70%

60%

50%

40%

30%

20%

10%

0%2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Forecast

68%

28%

4%

Home Purchase Home Refinancing Home Improvement

Source: HMDA (2000-2017), CoreLogic public records (2018), average of MBA, Freddie Mac, Fannie Mae projections (2019).

“The decrease in fraud risk mid-2019 appears temporary, based on unexpected interest rate drops and an influx of low-risk refinance transactions. The absolute number of risky loans did not decrease but is part of a larger mortgage market for now.” Bridget Berg, Mortgage Fraud Solutions Principal at CoreLogic

4 | 2019 Mortgage Fraud Report

Undisclosed real estate debt fraud occurs when a loan applicant intentionally fails to disclose additional real estate debt or past foreclosures . During the second quarter of 2019, this type of fraud risk decreased 12 .8 percent compared to the same quarter in 2018 . While the risk indicator decreased year-over-year, this is one of the most common issues today .

Property fraud occurs when information about the property or its value is intentionally misrepresented . From the second quarter of 2018 to the second quarter of 2019, property fraud risk decreased 9 .9 percent nationally .

Income fraud includes misrepresentation of the existence, continuance, source, or amount of income used to qualify . From the second quarter of 2018 to the second quarter of 2019, the income fraud risk indicator decreased 7 .7 percent .

Transaction fraud occurs when the nature of the transaction is misrepresented, such as undisclosed agreements between parties and falsified down payments. The risk includes third party risk, non-arm’s length transactions, and straw buyers . At the end of the second quarter of 2019, the transaction risk indicator decreased 3 .8 percent when compared to the same quarter in 2018 .

Identity fraud occurs when an applicant’s identity and/or credit history is altered, a synthetic identity is created, or a stolen identity is used to obtain a mortgage . This indicator decreased 2 .9 percent from the second quarter of 2018 to the second quarter of 2019 .

Occupancy fraud occurs when mortgage applicants deliberately misrepresent their intended use of a property (primary residence, secondary residence or investment). Programs, pricing, and underwriting guidelines are impacted by a property’s intended occupancy . From the second quarter of 2018 to the second quarter of 2019, the occupancy fraud indicator decreased 2 .0 percent .

National Mortgage Fraud TypesIndicators

UNDISCLOSED REAL ESTATE DEBT FRAUD RISK

12 .8% Q2 2018 to Q2 2019

PROPERTY FRAUD RISK

9 .9% Q2 2018 to Q2 2019

INCOME FRAUD RISK

7 .7% Q2 2018 to Q2 2019

TRANSACTION FRAUD RISK

3 .8% Q2 2018 to Q2 2019

IDENTITY FRAUD RISK

2 .9% Q2 2018 to Q2 2019

OCCUPANCY FRAUD RISK

2 .0% Q2 2018 to Q2 2019

September 2019 | 5

Mortgage Fraud TrendsAn Update on Out-Of-State Investors

In our 2018 annual report, we examined the increased risk and increased frequency of out-of-state investor (OOSI) applications. Key observations included:

Markets with high concentrations of OOSI activity had higher 90-day delinquencies and foreclosures .

Mortgage fraud rates for investment properties are 88 percent higher than baseline, and 140 percent higher for OOSI properties .

Reviewing our Mortgage Fraud Consortium data for 2018, we found this activity continues to increase:

OOSI activity increased from 20 percent of investment applications in 2017 to 22 percent of investment applications in 2018 .

The total activity increased by 37 .5 percent from 2013 to 2018 .

YearsAverage % of

Out of State Investors

2013 16%

2014 17%

2015 18%

2016 18%

2017 20%

2018 22%

See our 2018 Mortgage Fraud Report for more detailed information on the trend .

6 | 2019 Mortgage Fraud Report

Mortgage Fraud TrendsAn Update on Employment Tenures Less Than One Year

In our 2018 annual report, we researched a Fannie Mae-reported scheme surrounding fake employers used to validate borrower income . In July 2019, Freddie Mac also published information about a “phantom employer” investigation . Some fake employers may appear legitimate and have valid phone numbers, addresses, and web sites . Others may not even have a viable address . False diplomas and college transcripts are often used to supplement the short tenure for younger borrowers. The most consistent red flag is that the time with the current employer is typically less than one year . This short tenure avoids fraudulent income detection through IRS tax transcripts.

In our 2018 report, we noted an increasing share of applications with borrowers having less than one year on the job, and that trend continues into 2019 .

The trend could be due to an increase in younger applicants (who have lower median job tenures), or more frequent job changes in general. The U.S. Bureau of Labor Statistics shows more modest changes in job tenure nationally in all age groups (10 percent shorter since 2014) than is reflected in loan applications.

With short job-tenure applications and fake employer schemes continuing to increase, it is important to be aware of this scheme and the corresponding red flags. More information is available on the Fannie Mae and Freddie Mac fraud prevention web sites, and in our 2018 Mortgage Fraud Report .

< 1 Year On Job

5.0%

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

2011

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2011

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2011

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2011

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2012

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2012

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2012

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2012

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2019

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All Purchase First Time Home Buyer Purchase All Refinance

September 2019 | 7

Mortgage Fraud TrendsiBuyers and Fraud Risk

The purchase and rapid resale of a property for a higher price (flipping) has traditionally been a red flag for potential mortgage fraud. Since the financial crisis, flipping has become more common and less concerning as more renovators, both large and small, take on the task of updating aged housing . In the last two years, a growing portion of properties being purchased and quickly resold at a higher price are due to iBuyer activity. An iBuyer offers an instant cash sale for qualified homes and flexibility for the home seller, while avoiding open houses and contingencies in purchase agreements . Unlike most flippers, iBuyer price markups are modest—usually less than 10 percent.

It is not surprising that iBuyer transactions have lower fraud risk, as there is a high level of transparency and standardization, and home prices are still rising . The fraud risk outlook may change, especially if smaller companies try to compete and home prices fall . If real estate speculators cannot sell properties fast enough at an acceptable price, they can quickly drain operating capital . A situation like this could motivate schemes where the property is sold to a straw buyer at an inflated price, similar to a builder bailout.

Loans Where Seller is an iBuyer (Indexed at 100 in 2017)

2000

1800

1600

1400

1200

1000

800

600

400

200

02017-Q1 2017-Q2 2017-Q3 2017-Q4 2018-Q1 2018-Q2 2018-Q3 2018-Q4 2019-Q1 2019-Q2

We analyzed transactions for the largest iBuyers to better understand the growth and relative fraud risks for this new type of real estate transaction:

As of mid-2019, the iBuyer-as-seller activity is 18 times what it was in early 2017 within our CoreLogic Mortgage Fraud Consortium transactions.

In the markets where they operate, iBuyers accounted for over 1 percent of the sales transactions overall in 2018, and in some markets they may be involved in 5 percent or more of transactions.

iBuyers began in select cities and have been expanding to new areas. They target properties in large, liquid markets where automated valuations are most accurate.

To date, Consortium applications where the seller is an iBuyer have lower fraud risk than the average application from the same state (2016 – Q2 2019).

8 | 2019 Mortgage Fraud Report

Mortgage Fraud TrendsiBuyers and Fraud Risk (continued)

Percentage of iBuyers Per City, 2018

Atlanta

Nashville

Orlando

Phoenix

0.68%

2.47%

4.89%

Los Angeles

0.08%2.29% Charlotte

2.23%

Dallas

1.42%

Denver

0.07%

Houston

0.08%

Minneapolis

0.14%

San Diego

Tampa

Las Vegas

0.32%

1.25%

3.02%Sacremento

0.17%

Portland

0.02%

Raleigh

2.84%

Riverside

0.21%

San Antonio

0.58%

Percentage of iBuyer Transactions by Company, 2018

Relative Risk of Loans Where Seller is an iBuyer

62.08%Opendoor

1.20%Redfin

4.24%Zillow

2.26%Knock

30.22%Offerpad

AZ CA CO FL GA MN NC NV OR SC TN TX UT

-10%

-6%

-9%

-3%

-7%

-14%

-9%

-5%

-12%

-3%

-8%-7%

-13%

September 2019 | 9

Multi-Closing Fraud Risk

Multi-lien fraud is an extremely profitable scam that takes advantage of the lag between closing and recording to solicit multiple loans on a single property . According to the CoreLogic Multi-Close Alert Program (MCAP), 2019 is projected to show an increase in multi-lien fraud .

Loan Amounts Averted Through Multi-Closing Alert Program

$30M

$25M

$20M

$15M

$10M

$5M

$0M2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(Annualized)

10 | 2019 Mortgage Fraud Report

Mortgage Fraud Risk HighlightsBy State

The top five states experiencing fraud risk growth are Idaho, Alabama, Mississippi, New York, and Delaware:

Highest Annual Risk Growth by State

25%

20%

15%

10%

5%

0%ID AL MS NY DE

Rank 15

Rank 12 Rank 5Rank 1

Rank 13

Risk Rankings are based on state-level Mortgage Application Fraud Index. States with statistically insignificant volumes are excluded for this analysis.

Source: CoreLogic 2019

Fraud Type Indicators for States with Highest Year-Over-Year risk Growth

IDAHO Property

Transaction

ALABAMA Transaction

Occupancy

MISSISSIPPI Property

Income

NEW YORK Income

Property

DELAWARE Occupancy

September 2019 | 11

Mortgage Fraud Risk HighlightsBy State (continued)

Ten States with the Highest Application Fraud RiskNew York retains its top spot, and had a risk increase of 8 percent year-over-year .

Top Ten Riskiest States As Of Q2 2019 – Arrows Show Year-Over-Year Change

300

250

200

150

100

50

0NY FL NJ CA MS LA DC MDGA NM

8%

9% 0%

-4%

-7% -28% -17% -6% -29%

-21%

12 | 2019 Mortgage Fraud Report

Fraud Risk

5 percentile 95 percentile

Mortgage Fraud Risk HighlightsBy Geography

Fraud Risk Heat MapThe Fraud Risk heat map displays the CBSA rank for fraud risk as of Q2 2019 . Only the top 100 CBSAs by population are considered .

All tables or graphs below are limited to the top 100 Metropolitan areas based on population .

Five Metro Areas with the Highest Year-Over-Year Growth in Application Fraud Risk

Core-Based Statistical Area Risk IndexFraud Risk

Index Change

Syracuse, NY 150 60%

Albany-Schenectady-Troy, NY 190 58%

Tulsa, OK 178 36%

McAllen-Edinburg-Mission, TX 216 34%

Cincinnati, OH-KY-IN 110 24%

Five Metro Areas with the Largest Year-Over-Year Declines in Application Fraud Risk

Core-Based Statistical Area Risk IndexFraud Risk

Index Change

Springfield, MA 70 -75%

Wichita, KS 49 -63%

Oklahoma City, OK 100 -49%

Spokane-Spokane Valley, WA 82 -42%

Albuquerque, NM 147 -40%

September 2019 | 13

Mortgage Fraud Risk HighlightsBy Geography (continued)

Top 25 Metro Areas with the Highest Application Fraud Risk

Core-Based Statistical Area Population2019 Q2

Risk IndexYr/Yr 2018 Q2

to 2019 Q2Qtr/Qtr Q2 to Q1, 2019 Risk Rank

Miami-Fort Lauderdale-West Palm Beach, FL 6,158,824 309 7% -24% 1

New York-Newark-Jersey City, NY-NJ-PA 20,320,876 243 -7% -6% 2

McAllen-Edinburg-Mission, TX 860,661 216 34% 35% 3

Los Angeles-Long Beach-Anaheim, CA 13,353,907 213 -3% -10% 4

Deltona-Daytona Beach-Ormond Beach, FL 649,202 210 5% -19% 5

Tampa-St . Petersburg-Clearwater, FL 3,091,399 197 -7% -16% 6

Albany-Schenectady-Troy, NY 886,188 190 58% 61% 7

Tulsa, OK 990,706 178 36% 6% 8

Orlando-Kissimmee-Sanford, FL 2,509,831 167 -17% -17% 9

San Diego-Carlsbad, CA 3,337,685 166 -6% -17% 10

Oxnard-Thousand Oaks-Ventura, CA 854,223 163 -15% -15% 11

Cape Coral-Fort Myers, FL 739,224 163 -5% -22% 12

San Francisco-Oakland-Hayward, CA 4,727,357 160 -3% -11% 13

Urban Honolulu, HI 988,650 157 -25% -31% 14

Jacksonville, FL 1,504,980 157 -7% -24% 15

Augusta-Richmond County, GA-SC 600,151 151 -32% -12% 16

Syracuse, NY 654,841 150 60% 39% 17

El Paso, TX 844,818 150 -21% -7% 18

Atlanta-Sandy Springs-Roswell, GA 5,884,736 149 -19% -9% 19

Memphis, TN-MS-AR 1,348,260 148 -26% -6% 20

Las Vegas-Henderson-Paradise, NV 2,204,079 148 -20% -10% 21

Albuquerque, NM 910,726 147 -40% -9% 22

New Orleans-Metairie, LA 1,275,762 147 -19% -26% 23

Chattanooga, TN-GA 556,548 146 -7% 18% 24

Columbia, SC 825,033 145 6% -15% 25

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For more information: corelogic.com/mortgagefraud | 866.774.3282 | loansafe@corelogic.com

National Mortgage Fraud IndexMethodology

Comprehensive fraud risk analysis based on the industry’s largest lender-driven mortgage fraud consortium and leading predictive-scoring technology.

The CoreLogic Mortgage Application Fraud Risk Index represents the collective level of fraud risk the mortgage industry is experiencing in each time period, based on the share of loan applications with a high risk of fraud. The index is standardized to a baseline of 100 for the share of high-risk loan applications nationally in the third quarter of 2010 .

The Fraud Type Indicators are based on specific CoreLogic LoanSafe Fraud Manager alerts . These alerts are compiled consistently for all CoreLogic Mortgage Fraud Consortium members . Indicator levels are based on the prevalence and predictiveness of the relevant alerts . An increase in the indicator correlates with increased risk of the corresponding fraud type .

About CoreLogicCoreLogic (NYSE: CLGX), the leading provider of property insights and solutions, promotes a healthy housing market and thriving communities . Through its enhanced property data solutions, services and tech-nologies, CoreLogic enables real estate professionals, financial institutions, insurance carriers, government agencies and other housing market participants to help millions of people find, acquire and protect their homes . For more information, please visit www .corelogic .com .