Nevada Ranks Highest in Mortgage Fraud Risk - 8 News NOW

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Nevada Ranks Highest in Mortgage Fraud Risk

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Nevada had the nation's highest mortgage fraud risk in April through June, according to risk assessment research firm Interthinx of Agoura Hills, Calif.

In its latest quarterly report released in August the company calculated that Nevada had a mortgage fraud risk index of 240, far higher than the national average of 142. Arizona placed second at 230.

It was the fifth consecutive quarter that Nevada and Arizona remained in the top two spots.

The Las Vegas metropolitan area was rated fifth riskiest among cities with a rating of 249, a 2.5 percent increase from the first quarter of 2011 but a slight decline from last year. The only cities that ranked ahead of Las Vegas were Stockton, Modesto and Riverside/San Bernardino, Calif. and Phoenix.

Top Five Cities for Mortgage Fraud Risk as of June

  1. Stockton, CA
  2. Modesto, CA
  3. Riverside, CA
  4. Phoenix, AZ
  5. Las Vegas

What these cities had in common was a surge in population growth and new home construction that led to skyrocketing housing prices, leading to abuse of home loan programs and emergence of borrowers who carried unsustainable loans. (Arguably, the abuse was on both sides – borrowers who made false statements about income and other financial information and lenders who took advantage of borrowers.)

Interthinx also identified the Las Vegas zip code 89107 as the nation's ninth riskiest with a rating of 409, even though other research firms that track foreclosure activity place that zip code in the middle of the pack among the city's zip codes when it comes to notices of default.

The mortgage fraud risk index accounts for different types of mortgage fraud. Property valuation fraud involves manipulation of property values to create profits from loan proceeds. Identity fraud is committed when the identities of the perpetrators are hidden to obtain a credit profile that will meet the lender's guidelines.

Occupancy fraud is often perpetrated by investors who falsely claim they intend to occupy the home in order to obtain mortgages with lower down payments or interest rates. Employment/income fraud occurs when loan applicants misrepresent their income to qualify for a loan.

Where Las Vegas ranks highest, according to Interthinx, is in property valuation fraud. The metro area placed second nationally in this category with an index of 549, trailing only Stockton, Calif. The Las Vegas index was 4.8 percent higher than in the first three months of the year but 8.5 percent lower than last year.  

An example of property fraud is this: the perpetrator of fraud submits a faulty appraisal of a home that is higher than the home is actually worth. The lender, thinking the appraisal is legitimate, approves a mortgage loan that is much higher than necessary. The fraudster skims the profits from the home loan and then goes into default on the mortgage, forcing the home into foreclosure.

The lender is stuck with the home, taking a big loss on the loan. This kind of scheme has contributed to the massive foreclosure problem in Southern Nevada and has contributed to the devaluation of neighborhoods.

When the Las Vegas FBI announced Operation Stolen Dreams in 2010, they were going after these types of fraudsters. And the frauds can be elaborate, involving the use of straw buyers, limited liability corporations and falsified income information to hide the identities of the fraudsters and lure lenders into making loans they never should have made. These frauds typically victimize banks. But there are other kinds of mortgage-related fraud that victimize homeowners, such as the crooks who promise to modify a home loan for an upfront fee but do no modification after the fee is collected. This is the type of fraud that the Nevada Attorney General has been going after, with many of the victims being seniors.

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